AC102 PPT1 - Merchandising Business (PPT from Sir Leandro Fua)

College of Business, Entrepreneurship and Accountancy

MIRIAM COLLEGE

COURSE OUTLINE2nd Semester, SY 2012-2013

Business Administration Department



Course CodeBSA – 102

Course Title

Principles of Accounting Part 2


Principles of Accounting, Part 1Business entities may engage in any of the following type of business. These are:

1. Service business. This business renders services to customers or clients for a fee. Examples of service type of business are: public transport companies, beauty parlors, security agencies, repair shops, laundry shops, schools, medical or health clinics, event coordinators, law offices, accounting firms and advertising firms.

2. Merchandising business or trading. This kind of business buys goods or commodities and sells the same at a profit. Examples are: grocery stores, supermarkets, hardware stores drugstores, car dealers, real estate dealers and appliance stores.

3. Manufacturing business, This type makes finished goods from raw materials or unassembled parts. A manufacturing business produces the goods that it sells. Examples are: shoe factories, garment factories, car assembler and food processing plants.


Merchandise Inventory

• Merchandise– Goods that a Merchandising company sells to its

customers regardless of the type of products the company sells

• Merchandise Inventory– Is the cost of goods on hand available for sale at

any given time


Business Documents

• Invoice– prepared by the seller– Contains detail of the sale

• Quantity• Item Description• Unit Price• Total Price • Term of sale• Total Amount Sold• Manner of Shipment


• Purchase Order– Prepared by the purchasing department– Sent to Supplier – Asking for items to be shipped to the purchaser

• Receiving Report– Prepared by receiving department– Showing

• Quantity• Item Description


Recording Sales

• Credit Memorandum– A note issued by the seller– Indicating amount and reason for the credit

• Debit Memorandum– A note issued by the buyer who is returning the

merchandise to the seller – Indicating the amount and reason for the debit


Trade Discount

• List Price – Original price quoted by the seller

• Trade Discount – Discount given and deducted from the list price– Reduce the cost of the catalog price– Grant for quantity discount– Allow of quotation of different price

• Chain Discount – Several trade discount granted to buyer


Recording Trade Discount

• List price – 1,000 umbrella at P100.00 P 100,000.00

• Trade Discount Large Volume– 10% Volume discount 10,000.00

– (P 100,000.00 x 10%) P 90,000.00

• Trade Discount – No Sales Invoice Discount– 7% No invoice Discount 6,300.00– (P 90,000 x 7%)– Gross Invoice Price P 83,700.00


Sales (Cash) Discount

• Term of payment (Credit Term)– States when payment is to be made

• n/30 means 30 days after the date of sale• n/45 means 45 days after the date of sale

• Cash discount– A deduction from the gross invoice price that the

buyer can take if he pays within a specified period of time

• 2/10, n/30• 3/EOM, /60


Recording Sales• Sold 530 units for P7 each (Terms 2/15, n/90)

• On Account

Accounts Receivable 3,710.00Sales 3,710.00

• If paid within discount period

Cash 3,635.80Sales Discount 74.20Accounts Receivable 3,710.00


Sales Return and Allowances

• Sales Return– Merchandise returned by a buyer that is

considered a cancellation of sales

• Sales Allowance– Is granted if the customer keeps the merchandise

although dissatisfied

• EntrySales Return and Allowances xxx

Accounts receivable xxx


Reporting Net Sales

Revenue from SalesGross Sales P XXXLess : Sales Discount P XXX

Sales Return and Allowances XXX XXX

Net Sales P XXX

Merchandise CompanyComprehensive Income Statement

For the Year ended December 31, 20XX


Inventories

Perpetual Inventory Systems

• Inventory System wherein the inventory records are continuously updated for the following events– Purchases– Purchase Discounts Taken– Purchase Returns & Allowances– Sales (remove from inventory the COST of the units sold)– Sales Returns (add to inventory the COST of units returned)

• Used by companies with high value merchandise

• A physical count is done at the end of the year and is compared with the recorded balances on hand


Periodic Inventory System

• inventory transactions are not recorded directly in the Inventory account

• Uses separate accounts for each transaction– Purchases– Purchase Returns & Allowances– Purchase Discounts– Transportation In

• Used by companies with low value merchandise

• A physical count is done at the end of the year and to determine the balance at the end of the period


Recording Purchases• Purchased 530 units for P7 each (Terms 2/15,n/90)

• On Account

Purchases 3,710.00Accounts Payable 3,710.00

• If paid within discount period

Accounts Payable 3,710.00Purchase Discount 74.20Cash 3,635.80


Purchase Return and Allowances

• Purchase Return– Merchandise returned by the buyer that is

considered a cancellation of purchase

• Purchase Allowance– Is granted if the customer keeps the merchandise

although dissatisfied

• Entry Accounts Payable xxx

Purchase Return and Allowances xxx


Freight Charges / Delivery Cost

FOB Shipping Point FOB Destination

Shipping Point Buyer Owns Shipment

Destination Buyer Owns Shipment

Who owns the shipment Buyer Seller

Shipment destroyed at sea Buyer Seller

Transportation Cost Buyer Seller

Freight Prepaid

Freight Collect

Seller pays the freight at the time of shipment

Buyer pays the freight upon arrival of the goods


Physical Inventory

• Taking a physical inventory consists of counting the physical units of each type of merchandise on hand

• Regardless of location– Goods shipped to a potential buyer “on approval” are

not considered sold– Goods on consignment are not considered sold

• Merchandise in transit– Merchandise in the hand of freight company on the

date of the physical count depending on the passage of title


Cost of Goods SoldCost of Goods sold

Merchandise Inventory, Jan 1, 20XX P XXXPurchases P XXXAdd transportation In XXX

Delivered Cost of Merchandise Purchased P XXXLess : Purchase Discount P XXX

Purchase Return and Allowances XXX XXX XXX

Goods Available for Sale P XXXLess : Merchandise Inventory, Dec 31, 20XX XXX

Cost of goods sold XXX


Value Added Tax

• Section 106 of the National Internal Revenue Code - 12% VAT on Sales of goods or properties

• Section 106 of the National Internal Revenue Code - 12% VAT on Sales or exchange of services

• The Liability to the government is recorded as follows:

Cash 1,120.00VAT Payable 120.00Sales 1,000.00

To record sales of P 1,000.00 subject to 12% VAT

Education

AC102 PPT1 - Merchandising Business (PPT from Sir Leandro Fua)