A merchandising company is an enterprise that buys and sell goods to earn profit.

Below are
examples of merchandising business.

The multi-awarded The SM STORE (formerly

SM Department Store), which has over 60
stores strategically located in key cities
throughout the country, carries a wide range
of apparel, accessories, houseware, general
merchandise and lifestyle products.

Watsons is Asia’s leading health and beauty

retailer, currently operating over 7,200 stores
– more than 1,500 pharmacies, in 13 Asian and
European markets, including Mainland
China, Hong Kong, Taiwan, Macau,
Singapore, Thailand, Malaysia, Philippines,
Vietnam, Indonesia, Russia, Turkey and
Ukraine.

Ace Hardware Corporation is an

American hardware retailers' cooperative based
in Oak Brook, Illinois, United States. It is the
world's largest hardware retail cooperative, and
the largest non-grocery American retail
cooperative.

Alfamart is a pioneering company with the

introduction of the mini-market concept, a
smaller store format found in communities
that offers Filipino family’s basic goods, fresh
meat, poultry and vegetables as well as food-
to-go products. It also offers services such as
ATM, bills payment and prepaid load.
• Sales Invoice is prepared by the seller of goods and sent to the buyer.
• Bill of lading is a document issued by the carrier - a trucking, shipping or airline – that
specifies contractual conditions and terms of delivery such as freight terms, time, place,
and the person named to receive the goods.
• Statement of account is a formal notice to the debtor detailing the accounts already due.
• Deposit slips are printed forms with depositor’s name, account number and space for
details of the deposit.
• Check is a written order to a bank by a depositor to pay the amount specified in the check
from the checking account to the person named in the check.
• Purchase requisition is a written request to the purchaser of an entity from an employee
or user department of the same entity that goods be purchased.
• Purchase order is an authorization made by the buyer to the seller to deliver the
merchandise as detailed in the form.
• Receiving report is a document containing information about goods received from a
vendor. It formally records the quantities and description of the goods delivered.
• Credit memorandum is a form used by the seller to notify he buyer that his account is
being decreased due to errors or other factors requiring adjustments.

The periodic inventory system is primarily used by business that sell relatively
inexpensive goods and that are not yet computerized scanning systems to analyze goods
sold. A characteristic of the periodic inventory system is that no entries are made to the
inventory account as the merchandise is bought and sold. When goods are purchased, a
separate set of accounts – purchases, purchase discounts, purchase returns and allowances,
and transportation in – is used to accumulate information on the net cost of the purchases.
Only at the end of the period, when the inventory is counted, will entries be made to the
inventory account to establish its proper balance.

1. When merchandise is purchased for resale to customers, the account, Purchases, is

debited for the cost of goods purchased.

2. Like sales, purchases may be made for cash or on account (credit).

3. . The purchase is normally recorded by the purchaser when the goods are received from
the seller.
 • Each credit purchase should be supported by a purchase invoice.
• A purchase invoice received by the buyer is actually a sales invoice or a charge
invoice prepared by the supplier or vendor.
• Note that only purchases of merchandise are debited to the ‘Purchase’ account.
Acquisition (purchases) of other assets: supplies, equipment, and similar items
are debited to their respective accounts.
Purchases XXX
Cash XXX

Purchases XXX
A/P XXX

1. A purchaser may find the merchandise received to be unsatisfactory because the goods
are:
• damaged or defective
• of inferior quality
• not in accord with the purchaser’s specifications

2. The purchaser initiates the request for a reduction of the balance due through the issuance
of a debit memorandum. The debit memorandum is a document issued by a buyer to
inform a seller that the seller’s account has been debited because of unsatisfactory goods.

3. A return of the merchandise (a deduction from the purchase price when unsatisfactory
goods are kept) is shown by the entry where Accounts Payable is debited and Purchase
Returns and Allowances is credited to show that the purchases was reduced with a return
or an allowance.

4. The Purchase Returns and Allowances account is a “contra purchases” account when
merchandise is returned to a supplier.

Accounts Payable XXX

Purchase Returns and Allowances XXX

Cash XXX
Purchase Returns and Allowances XXX
The sales agreement should indicate whether the seller or the buyer is to pay the cost of
transporting the goods to the buyer’s place of business. The two most common arrangements for
freight costs are FOB SHIPPING POINT AND FOB DESTINATION.

FOB Shipping Point: Freight-In XXX

• Goods placed free on board (FOB) the carrier by seller. Cash XXX
• Buyer pays freight costs.
• Freight-In is debited if buyer pays freight. Freight-In XXX
• Cash is credited if the goods come on cash on delivery (COD), for example, A/P XXX
and was paid
immediately. Accounts Payable would be credited if on account.
• Ownership over the goods is transferred to the buyer once it is out of the premises of the
seller.

FOB Destination
• Goods placed free on board (FOB) at buyer’s business.
• Seller pays freight costs.
• Delivery Expense is debited if seller pays freight on outgoing merchandise to “No Entry”
a buyer. This is an operating expense to the seller.
• Ownership over the goods is transferred to the buyer once the goods are
delivered and received by the buyer.

1. Credit terms (specify the amount of cash discount and time

period during which a discount is offered) may permit the Case A
buyer to claim a cash discount for the prompt payment of a
balance due. If the credit terms show 2/10, n/30 means a Accounts Payable XXX
2% discount is given if paid within 10 days (called the Purchase Discount XXX
discount period); otherwise, the invoice is due in 30 days. Cash XXX

2. The buyer calls this discount a purchase discount. Case B

3. A purchase discount is normally based on the invoice cost Accounts Payable XXX
less returns and allowances, if any. Cash XXX
Revenues are reported when earned in accordance with the revenue recognition principle, and in a
merchandising company, revenues are earned when the goods are transferred from seller to buyer.

• All sales should be supported by a document such as a cash register tape (to provide evidence
of cash sales) or cash receipt, or office receipt for cash sales, and charge invoice for credit sales, or
sales on account.

• One entry is made with each sale:

Debit — Accounts Receivable (if a credit sale) or Cash (if a cash sale) which increases assets for
the sales amount
Credit — Sales which increases revenues

• The sales account is credited only for sales of goods held for resale. Sales of assets not held for
resale (such as equipment, buildings, land, etc.) are credited directly to the asset account.

FREIGHT TERMS: FOB DESTINATION — SELLER PAYS FREIGHT

• An entry is made when seller pays the freight to deliver goods to a customer or buyer.
If the buyer will pay for the freight, no entry is made.

• Debit — Delivery Expense and credit — Cash or Accounts Payable

• Sales Returns result when customers are dissatisfied with merchandise and are
allowed to return the goods to the seller for credit or a refund.

• Sales Allowances result when customers are dissatisfied, and the seller allows a
deduction from the selling price.

• To grant the return or allowance, the seller prepares a credit memorandum to inform
the customer that a credit has been made to the customer’s account receivable.

• Sales Returns and Allowances is a contra revenue account to the Sales account. A
contra account is a reduction to a particular account.

• A contra account is used, instead of debiting sales, to disclose the amount of sales
returns and allowances in the accounts.
 • This information is important to management as excessive returns and allowances
suggest inferior merchandise, inefficiencies in filling orders, errors in billing customers,
and mistakes in delivery or shipment of goods.

• The normal balance of Sales Returns and Allowances is a debit.

• One entry is made with each sales return and allowance:

The entry to record the sales return or allowance:
• Debit — Sales Return and Allowances which decreases revenues for the
amount of the sale
• Credit — Accounts Receivable (if a credit sale) or Cash (if a cash sale)
which decreases assets

• A sales discount is the offer of a cash discount to encourage customers to pay the
balance at an earlier date.

• An example of a discount term is commonly expressed as: 2/10, n/30, which means that
the customer is given 2% discount if payment is made within 10 days. After 10 days
there is no discount, and the balance is due in 30 days.

• Sales Discounts is a contra revenue account with a normal debit

balance.