accounting for merchandising business_my own
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8/6/2019 Accounting for Merchandising Business_my Own
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Accounting for Accounting for
Merchandising BusinessMerchandising BusinessBy: Ms. Elma L. MallorcaBy: Ms. Elma L. Mallorca
Accountancy Faculty Accountancy Faculty
DLSUDLSU--DD
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Nature of a MerchandisingNature of a Merchandising
BusinessBusiness
� An entity engaged in the activities of
buying and selling of products
� Sells products to generate revenue
� Does not produce its own products to sell
� Also described as ³trading enterprise´,
³trading firm´ or ³buy and sell business´
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The Operating Cycle of A BusinessThe Operating Cycle of A Business
� Service Business
Cash
Phase 1 Phase 2 Render service Collect from
to customers customer
� MerchandisingBusiness
Cash
Phase 1 Phase 3
Buy merchandise Collect from
customers
Phase 2
Sell to customers
on account
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Statement of IncomeStatement of Income
X Merchandising
Income Statement
For the year ended, December 31, 2011
Net Sales xxx
Less: Cost of Sales xxx
Gross Profit xxx
Less: Distribution Costs xxx
General & xxx
Administrative
Expenses ________
Net Income xxx
X Service Co.
Income Statement
For the year ended, December 31, 2011
Revenue xxx
Less: Operating Expenses xxx
Net Income xxx
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Chart of Accounts of Chart of Accounts of
Merchandising BusinessMerchandising Business Acct.
No.
ASSETS
110 Cash in Bank
111 Cash on Hand
112 Petty Cash
120 Accounts Receivable
130 Allowance for Bad Debts
140 Notes Receivable
150 Interest Receivable
160 Merchandise Inventory
170 Supplies
180 Prepaid Rent
190 Prepaid Insurance
200 Land
210 Building
211 Accumulated Depreciation-Bldg.
220 Furniture & Fixtures
221 Accumulated Depreciation-F&F
Acct.
No.
LIABILITIES
310 Accounts Payable
320 Notes Payable
321 Interest Payable
330 Salaries Payable
340 Income Tax payable
350 Witthholding Tax payable
360 SSS Contribution Payable
370 PhilHealth Contribution Payable
380 Pag-ibig Contribution payable
390 Unearned Income
400 Loans Payable
410 Mortgage Payable
OWNER's EQUITY
510 Cruz, Capital
520 Cruz, Drawing
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Chart of Accounts of Chart of Accounts of
Merchandising BusinessMerchandising Business Acct.
No.
COST and EXPENSES
710 Purchases
711 Purchase Returns & Allowances
712 Purchase Discounts
713 Freight-in
715 Cost of Goods Sold
720 Salaries Expense
730 Rent Expense
740 Utilities Expense
750 Bad Debts Expense
760 Advertising Expense
770 Insurance Expense
780 Taxes & Licenses
790 Supplies Expense
800 Interest Expense
810 Freight-out
820 Depreciation Expense
Acct.
No.
REVENUES
610 Sales
611 Sales Returns & Allowances
612 Sales Discounts
720 Interest Income
730 Rent Income
740 Miscellaneous Income
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Major Business Activities of aMajor Business Activities of a
Merchandising FirmMerchandising Firm
� Purchasing Activities
± Purchases
± Freight-in ± Purchase Returns &
Allowances
± Purchase Discounts
� Selling Activities
± Sales
± Freight-out ± Sales Returns &
Allowances
± Sales Discounts
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Trade Discounts vs. Cash DiscountTrade Discounts vs. Cash Discount
� Trade discounts ± Not journalized
± Amount deducted from
the supplier¶s price listor price catalogue toarrive at the invoiceprice
± Incentive to buy in big
quantity ± Example
� List price, P100,000,terms, 30, 10
� Cash Discounts ± Journalized
± Sales discount,
purchases discount ± Given to encourage
prompt payments
± Example� n/30
� 2/15, n/30� 2/15, EOM
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Transportation CostTransportation Cost
Who shoulders the transportation cost?
� F. O. B. Shipping Point
� F.O. B. DestinationWho actually pays for the transportation
cost?
� Freight prepaid� Freight collect
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Freight TermsFreight Terms
� F.O.B. Shipping Point, Freight Prepaid
� F.O.B. Shipping Point, Freight Collect� F.O.B. Destination, Freight Prepaid
� F.O.B. Destination, Freight Collect
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Freight TermsFreight Terms
Term W ho should pay? W ho actually paid
W ho should record
freight? for the freight?
F.O.B. Shipping Point,
Freight Collect buyer buyer
F.O.B. Shipping Point,
Freight Prepaid buyer seller
F.O.B. Destination,
Freight Collect seller buyer
F.O.B. Destination,
Freight Prepaid seller seller
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Inventory Accounting SystemsInventory Accounting Systems
� Periodic Inventory System ± No continuous record of the physical quantities
± Inventory acquired is debited to PURCHASES
± Ending inventory is determined by conducting a physical count at
the end of the period� Perpetual Inventory System
± There is continuous record of the changes of the physicalquantities
± Inventory acquired is debited to MERCHANDISE INVENTORY
± Physical count is not required but needed to be done at leastonce a year to verify the perpetual inventory balance
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Value Added Tax (VAT)Value Added Tax (VAT)
� 12% VAT rate
� VAT on purchases of goods/services
± Input tax
� VAT on sale of goods/merchandise
± Output tax