Merchandising Operations

1
Merchandising Operations
AGRICULUTURAL TECHNICAL INSTITUTEBUS TEC T101
ACCOUNTING

• Chapter 5

Part 2
Merchandising Transactions
2
2
Account For Purchase Sale Of Inventory
OBJ
From this Point On, Inventory will Refer to the
Goods that a Firm Buys at Wholesale and Resells
at Retail
There are three major players
Supplier/Vendor
Customer
Us
There are two major movements
B. Money
A. Physical Goods/Inventory
3
2
Account for purchase sale of inventory
OBJ
A. PHYSICAL INVENTORY MOVEMENT
Sales
Purchases
Out
Supplier
In
Inventory
Customer
Supplier
Customer
In
Returns
Out
Wrong ????
Damaged Goods
4
2
Account for purchase sale of inventory
OBJ
B. INVENTORY TRANSACTION
Sales
Purchases
Supplier
In
Inventory
Out
Customer
Cash
Cash
Accts Payable
Accts Receivable
Transportation In
Transportation Out
Returns
Customer
Supplier
Damaged Gds
Sales Ret Allow
Pur Ret Allow
Sales Discount
Sales Discount
Purchase Discount
Cash Discount
Cash Discount
Timeliness Discount
Timeliness Discount
5
Purchase of Inventory
2a
Account For Purchase Of Inventory
OBJ
Purchase Order What, How Many
Merchant prepares
Suppliers send
Merchandise An Invoice

Receiving Rec
P.O.
Yes
Compares
Send Payment
No
Negotiate Adj Send Payment
6
Purchase of Inventory Example
186
2a
Account For Purchase Of Inventory
OBJ
On May 1, Ag Products paid cash for 2,000 of
various items for resale.

• May 1

Inventory 2,000
Cash 2,000
Purchased inventory for cash
Inventory
Cash
2,000
2,000
7
Purchase of Inventory Example
186
2a
Account For Purchase Of Inventory
OBJ
On May 2, Ag Products acquired on account 2,000
of various items for resale.

• May 2

Inventory 2,000
Accounts Payable -XYZ 2,000
Purchased inventory on account
Inventory
Accounts Payable
2,000
2,000
8
Recording A Purchase Returns
188
2a
Account For Purchase Of Inventory
OBJ

• On May 4, Ag Products returned a 100 item and
  received a cash refund.

May 4
Cash - XYZ 100
Inventory 100
Merchandise was returned
9
Recording A Purchase Returns Example
188
2a
Account For Purchase Of Inventory
OBJ

• On May 4, Ag Products returned a 100 item prior
  to payment of the invoice.

May 4
Accounts Payable - XYZ 100
Inventory 100
Merchandise was returned
10
Recording Purchase Allowance
188
2a
Account For Purchase Of Inventory
OBJ

• Assume other merchandise is slightly damaged, and
  Ag Products was given a 10 allowance.

May 5 Accounts Payable -XYZ 10
Inventory 10
Accounts Payable
Inventory
2,000 100 10
100 2,000 10
Bal. 1,890
Bal. 1,890
11
Recording Transportation Costs
189
2a
Account For Purchase Of Inventory
OBJ

• Transportation costs are the cost of moving
  inventory from seller to buyer.
• FOB stands for Free on Board and governs the
  passing of title of the goods.

FOB Shipping Point
FOB Destination
Shipping Dock
Receiving Dock
Title Transfer
Transport Arrangements, Liab, Cost
Buyer
Seller
12
Freight Charges Example
189
2a
Account For Purchase Of Inventory
OBJ

• Ag Products had a 60 FOB Ship Pt freight bill
• What is the journal entry?

Charged Freight Bill
Paid Cash for Freight
May 9 Inventory 60 Cash
60 Paid a freight bill
May 9 Inventory 60 Acct Payable-UPS 60

May ? Acct Payable-UPS 60 Cash
60
13
Purchase Discounts
187
2a
Account For Purchase Of Inventory
OBJ

• Credit terms are stated in expressions such as
• 2/10, N/30, meaning that a discount of 2 is
  allowed if the invoice is paid within 10 days
  otherwise the full (net) amount is due within 30
  days.

Cost of Not Taking the Discount
360 Days/Yr


72/Yr
36 Periods
X 2
10 Days/Period
14
Purchase Discounts Example
187
2a
Account For Purchase Of Inventory
OBJ

• Assume Ag Products purchased merchandise for
  1,000 with terms of 2/10, N/30.
• The store paid within the discount period.
• The 2 discount (20) is deducted from the amount
  due (1,000) and 980 is remitted.

Accounts Payable- XYZ 1,000 Cash
980 Inventory
20 To record invoice payment within discount
period
15
Inventory Purchase Transactions
190
2a
Account For Purchase Of Inventory
OBJ
Inventory
Debit
Credit
Decrease
Increase
Wholesale Cost Of Goods
Purchase Returns
Purchase Allowances
Freight In
Purchase Discounts
16
PurchasingInventory
190
2b
Account For Sale Of Inventory
OBJ
SellingInventory
17
On May 11, Ag Products sold merchandise costing
1,800 for 2,600 cash.
191
2b
Account For Sale Of Inventory
OBJ
May 11 Cash 2,600 Sales Revenue
2,600 To record cash sale of merchandise
May 11 Cost of Gds Sold (Whlse Exp)
1,800 Inventory (Curr Asset)
1,800 To record the cost of merchandise sold
18
191
2b
Account For Sale Of Inventory
OBJ
On May 15, Ag Products sold Mary merchandise
worth 5,000 with a 3,000 cost. Terms2/10, N/30
May 15 Accounts Rec - Fred 5,000 Sales
Revenue 5,000 To record sale of
merchandise on acct
May 15 Cost of Gds Sold (Whlse Exp)
3,000 Inventory (Curr Asset)
3,000 To record the cost of merchandise sold
19
On Account Sale Return
192
2b
Account For Sale Of Inventory
OBJ
On May 17, Mary returned 1,500 worth of goods
bought on account that cost 900.
May 17 Sales Returns and Allowance
1,500 Accounts Receivable - Mary 1,500 Recei
ved returned merchandise
May 17 Inventory
900 Cost of Goods Sold 900 Returned
goods to inventory
20
Cash Sale Return
192
2b
Account For Sale Of Inventory
OBJ
On May 18, Jane returned 1,300 worth of goods
bought with cash that cost 900.
May 18 Sales Returns and Allowance
1,300 Cash to Mary
1,300 Received returned merchandise
May 18 Inventory
800 Cost of Goods Sold 800 Returned
goods to inventory
21
Cash Sale Return w/ Store Credit
192
2b
Account For Sale Of Inventory
OBJ
On May 19, Judy returned 150 worth of goods
bought with cash that cost 90 for store credit.
May 19 Sales Returns and Allowance
150 Accounts Payable to jUDY
150 Received returned merchandise
May 19 Inventory
90 Cost of Goods Sold 90 Returned
goods to inventory
22
Sales Allowances Example
193
2b
Account For Sale Of Inventory
OBJ
A credit of 100 was allowed to Mary for
merchandise that was damaged
May 17 Sales Returns Allowance 100 Accounts
Receivable - Mary 100 Credit granted for
damaged goods

• There is no entry required for inventory since
  the goods were not returned.

23
Sales Discounts
193
2b
Account For Sale Of Inventory
OBJ

• On May 20, the store received a check from Fred
  for the balance due.
• What is the balance due?

Accounts Receivable May 15 5,000
Less May 17 returns allowances 1,600
Equals May 20 balance due of 3,400
24
Sales Discounts
193
2b
Account For Sale Of Inventory
OBJ

• Maria took advantage of the sales terms 2/10,
  N/30.

May 20 Cash
3,332 Sales Discounts
68 Accounts Receivable - Mary
3,400 Cash collected within the discount period
25
Inventory Sale Transactions
190
2b
Account For Sale Of Inventory
OBJ
Inventory
Retail Sales
Sales Returns
SRA
Sales Allowances
Sales Returns
Sales Discount
Sales Discount