Merchandising firm

Merchandising firm

1. Perpetual Inventory System

   • Gives a continual (and up to date) record of the amount of inventory on hand (available for sale to customers)

2. Periodic Inventory System

   • Requires updating of the inventory account only at the end of the period
     • Does not require continual updating. Most companies do not use this due to computerized systems.
     • Does not require continual updating.
       • Most companies do not use this due to computerized systems.

3. Types of transactions that follow

   • Selling Return/Reseller
     • Customer returns 100 unsatisfactory merchandise they bought from you. Merchandise goes back into your inventory.
     • Sales Returns & Allowances
     • Cash
     • A/R - Company
     • MI
     • COGS
   • Return/ No back Inventory
     • Customer returns $100 of unsatisfactory goods, but you throw them away.  Customer keeps goods and you give them a discount to keep them happy.
     • Sales Returns & Allowances
     • Cash
     • A/R- Company
   • Sales Discount
     • Sold goods to a customer for $500 on account. Goods cost you $200.
     • A/R
     • Sale
     • COGS
     • MI
   • Terms-2/10 n/30
     • Customer gets 2% discount if he pays within 10 days of sale and Net amount (balance) is due in 30 days.
     • Cash (500x98%)
     • Sales Discount (500x2%)
     • A/R - Company
   • Purchase Discount
     • Purchase 1000 worth of goods to resell on account (A/P) Terms - 3/10, n/45
     • MI
     • A/P
     • Discount paying supplies
       • A/P
       • MI (1000x3%)
       • Cash (1000x97%)
   • Purchase Returns & Allowances
     • When merchandiser returns goods to the supplier or When merchandiser is given an allowance and keeps the goods.
     • A/P
     • MI
   • Transportation
     • Sold
       • Selling
         • 2 entries
           • FOB Shipping point
             • The other part is paying for shipping
           • FOB Destination
             • Del Exp.
             • Cash or A/P - Company
     • Purchase
       • Buying
         • FOB Shipping Point
           • MI
           • Cash or A/P - Company
         • FOB Destination
           • The other part is paying for shipping
   • Trade Discounts
     • Trade discounts are given by manufacturers and wholesalers to customers. Price is 1500Trade discount 30% Buers would pay (1500x70%) =1050
     • Trade discounts are given by manufacturers and wholesalers to customers.
       • Price is 1500Trade discount 30%, Buyer would pay= 1050
   • Shrinkage
     • Lossing inventory. Theft. 
     • Lossing inventory
       • COGS
       • MI
   • SOLD
     • Sold goods to a customer for $1000 Goods cost you $600 when you bought them to resell.
     • Cash
       • Recorded the Cash sales
     • A/R - Company
       • Sold Merchandise on credit
     • Sales
     • COGS
     • MI

4. Closing entries for merchandiser

   • Sales
   • Sales R&A, Sales Discounts and COGS
   • Expenses
   • Revenue

5. Special attention

   • Goods in Transit
     • Goods on Consignment
       • Goods Damaged or Obsolete
         • Not counted in inventory if they are not in a saleabe condition. If these goods can be sold at a reduced price, they are included in inventory at their net realizable value (NRV)
       • Are goods shipped by their owner, consignor, to another party, consignee
     • Items purchased FOB shipping point must be included in the purchaser's inventory from the point they leave the supplier's shipping docks.