Merchandising Business

Net sales – Cost of goods sold.

Sales revenue – Sales discounts – Sales returns and allowances.

Beginning Inventory + Net cost of purchases - Ending inventory = Cost of good sold

Cost of beginning goods + Cost of goods purchased - Cost if goods sold = Cost ending inventory.

Cost of beginning goods + Cost of goods purchased - Cost of ending inventory = Cost of goods sold.

Merchandising Business

A ‘good’ (anything really)

Bought for a certain price



Sold for a higher price



Goods are bought and sold for profit!



Can of coke in store: $1.00



Can of coke from factory: $0.24



‘Gross Profit’

$ 0.76

Cash Discounts

A reduction in the amount owed if payment is
made on or before the discount date stated on
the bill



Incentive for the customer to pay the invoice

early

Purchase Returns and Allowances

Purchase Returns and Allowances are treated in the same
manner as Sales R & A.

Sales Return and Allowances

Sometimes, merchandise is returned—or a partial allowance
is given—after the sale.

Periodic Inventory System

The cost of goods that were sold is
determined ‘periodically’.. only once a
year!



It is done in the same fashion as

determining how many supplies were used

in the fiscal period.

Inventory System

To determine the accounting for inventory two possible
methods can be used:


Periodic Inventory System



The cost of the inventory sold is determined at the end of

the fiscal period (usually once a year)



PROS: easy to manage, faster, and inexpensive



CONS: amount of inventory on hand cannot be

determined unless a physical inventory count is performed

(this means the inventory numbers are misstated

throughout the fiscal year)



Perpetual Inventory System



Inventory is updated on a continuous basis



(more details later)

Gross Profit

The term ‘Gross Profit’ refers to the
amount:


An item is sold for



minus how much it was purchased for



eg. USB Bracelet from China

$4.60



Sold for

$10.00



Gross Profit

$5.40

Physical Inventory

The unsold goods are physcially counted
once a year.

Cost Of Good Sold

The term ‘Cost of Goods Sold’ refers to
the amount:

Of inventory that was sold during the fiscal
period.

It is determined by taking a ‘physical
inventory.’

eg. Merchandise Purchased
$10,000

Physical Inventory
$ 2,000
Cost of Goods Sold
$ 8,000

Merchandise Inventory

The quantity of merchandise to be resold

Merchandise Firm

Any business that buys merchandise or goods
to resell for a profit

C.O.D (Cash on Delivery)

Goods must be paid for with cash at the time
they are delivered.

On Account

The full amount of the invoice is due when
the invoice is received (A/P or A/R).

30 Days or Net 30

Full amount of invoice is due 30 days after
the date on the invoice.

2/10, n/30

Read as “Two, ten, net thirty”

If the bill is paid within 10 days, a cash
discount of 2% will be given. Otherwise, the
full amount of the invoice is due within 30
days after the invoice date.

Terms can vary