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Understanding Merchandising Business Models

The document outlines the operations of a merchandising business, which purchases products from suppliers to sell for profit, including various types of stores and online sellers. It details the complexities of managing inventory and the accounting methods used, namely periodic and perpetual inventory systems, along with examples of journal entries for purchases and sales. The document provides a comprehensive overview of how inventory transactions are recorded in both accounting methods.

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Princess Butlig
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3 views6 pages

Understanding Merchandising Business Models

The document outlines the operations of a merchandising business, which purchases products from suppliers to sell for profit, including various types of stores and online sellers. It details the complexities of managing inventory and the accounting methods used, namely periodic and perpetual inventory systems, along with examples of journal entries for purchases and sales. The document provides a comprehensive overview of how inventory transactions are recorded in both accounting methods.

Uploaded by

Princess Butlig
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

MERCHANDISING BUSINESS

The business purchases products from its suppliers which it sells to its customers for a profit.
Businesses in this type includes the following:

 Sari-sari stores, groceries and market stalls


 Hardware
 Appliance store
 Gadgets and electronics store
 Online product sellers

In contrast to a service business, a merchandising business is more complex due to the presence of
inventory. The inventory items needed to be purchased, transported, kept and then sold to the
customers.

In purchasing merchandise inventory, the company pays for the purchase price of the goods. There
could be an agreement for credit terms between the buyer and seller. The buyer might be offered
discounts within a certain period to encourage early or prompt payments. This is also true in selling
the merchandise inventory. The company might also offer credit terms and discounts to its customers.

There are two methods of accounting for the inventory of merchandising businesses, namely periodic
inventory method and perpetual inventory method.

Periodic Inventory Method


Under this method, the business maintains temporary accounts like purchases, purchase returns, and
purchase discounts. At the end of the accounting period, these temporary accounts are used to
determine the amount of inventory available for sale.

Perpetual Inventory Method


Under this method, the inventory account is continually updated for each inventory transaction. For
every journal entry of sales, a corollary journal entry for the cost of inventory sold is also recorded.
Purchases and returns are recorded in directly in the Merchandise Inventory account. Physical count
of inventory is conducted to confirm the balances in the stock cards.
PERIODIC INVENTORY SYSTEM

PURCHASES

1. To record purchase goods from a supplier:

Purchases xxxx

Cash/Accounts Payable xxxxx

2. To record purchase freight costs:

Freight-in xxxx

Cash xxxx

3. To record purchase discount:

Accounts Payable xxxx

Purchase Discounts xxxx

4. To record purchase return:

Accounts Payable xxxx

Purchase Returns and Allowances xxxx


1. To record sales to customer:

Cash/Accounts Receivables xxxx

Sales xxxx

2. To record freight costs:

Freight Out xxxx

Cash xxxx

3. To record sales discount:

Sales Discount xxxx

Accounts Receivable xxxx

4. To record sales return:

Sales Returns and Allowances xxxx

Cash/Accounts Receivable xxxx


PERPETUAL INVENTORY SYSTEM

PURCHASES

1. To record purchase goods from a supplier:

Merchandise Inventory xxxx

Cash/Accounts Payable xxxxx

2. To record purchase freight costs:

Merchandise Inventory xxxx

Cash xxxx

3. To record purchase discount:

Accounts Payable xxxx

Merchandise Inventory xxxx

4. To record purchase return:

Accounts Payable xxxx

Merchandise Inventory xxxx


SALES

1. To record sales to customer:

Cash/Accounts Receivables xxxx

Sales xxxx

Cost of Goods Sold xxxx

Merchandise Inventory xxxx

2. To record freight costs:

Freight Out xxxx

Cash xxxx

3. To record sales discount:

Sales Discount xxxx

Accounts Receivable xxxx


4. To record sales return:

Sales Returns and Allowances xxxx

Cash/Accounts Receivable xxxx

Merchandise Inventory xxxx

Cost of Goods Sold xxxx

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