Script
Good afternoon, everyone!
Kamusta naman this semester, very stressful na ba? like super legit and all?
Well don’t worry, been there done that, EME!
Pero as your 4th year Ate’s, we want to help you in your journey of learning and growth sa course na ito.
That is why, through the JPIA commitment to community service and academic excellence, we introduce
MILE (Making Immeasurable Learning through Enhancement Classes) Tutoring Sessions!
An initiative where us, your Ate’s, are here to offer FREE tutoring classes on the topic: ACCOUNTING FOR
MERCHANDISING BUSINESS.
We promise to help you better understand the topic with ease through the best of our abilities!
But before we get started, I am Joana Mica Sibuyo, together with me are my co-tutors,
We will be discussing Accounting for Merchandising Business.
We hope to make this an engaging and insightful session, so feel free to ask questions if may hindi kayo
maintindihan.
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Merchandising Businesses rely on the sale of inventory to generate profit.
These businesses can operate in different forms, like retail stores like grocery stores, or even through e-
commerce websites, shoppe.
The key Merchandising activities include:
1. Purchasing Inventory: Buying goods from suppliers to store as inventory until sold.
2. Sales of Inventory: Selling the goods to customers
3. Inventory Management: Keeping track of the goods purchased, stored, and sold.
4. Payment for Purchases: Settling payments for the goods acquired from suppliers.
5. Collecting Revenue: Receiving payment from customers, either in cash or on credit.
Service entities make money by providing services for a fee. To determine their profit, they just need a
simple income statement, which shows the difference between the money earned from services and the
expenses.
However, merchandising entities earn their profit by buying and selling goods. While they use similar
accounting methods as service entities, the buying and selling process involves some extra accounts and
concepts. This makes their income statement a bit more complicated.
To give a clearer picture of how well the business is performing, the income statement for a merchandising
business includes additional income components.
The income components for a merchandising entity include:
1. Net Sales: it is the total revenue generated from the sale of goods or inventory, after deducting
any sales discounts, returns, or allowances.
2. Cost of Sales or Cost Goods Sold (COGS): Is the direct cost of goods sold to customers, which
includes the purchase price of the inventory and any additional costs (e.g. shipping or handling)
necessary to bring the inventory to its saleable condition.
3. Gross Profit: The difference between net sales and the costs of goods sold. It indicates the
profitability of the business’s core activities, excluding operating expenses.
4. Operating Expenses or the Finance Costs: Include costs directly related to running the business,
such as administrative expenses (supplies, utilities), distribution costs (transportation costs), rent,
utilities, and salaries. These expenses are deducted from gross profit to arrive at operating profit.
5. Operating Profit: The profit generated from the business’s core operations after subtracting
operating expenses from gross profit.
6. Other Revenues and Expenses: This includes income from non-operating activities (e.g. interest,
dividends) and other expenses (e.g., interest on loans, taxes).
7. Net Profit (Profit for the Period): The final profit after deducting all expenses, including taxes,
from operating profit.
In a merchandising business, the process works like this: the business buys products (inventory), sells
them, and uses the money earned to buy more products, repeating the cycle.
For cash sales, it's a direct cycle from money to products and back to money. But for credit sales (when
customers pay later), the cycle goes from money to products, then to customer debts (accounts
receivable), and finally back to money when the customers pay.
The goal for any manager is to make this cycle as fast as possible because the quicker they sell products
and get paid, the more profit they can make.
SOURCE DOCUMENTS
In merchandising businesses, different documents are used to keep track of transactions that need to be
recorded in the company’s books.
These documents, called source documents, provide important details about what the transaction was
and how much money was involved.
Some examples of common source documents and their descriptions are shared on the next page, and
you'll also find some examples of these documents on the following pages to help you understand how
they look and work.
1. A sales invoice is a document the seller gives to the buyer when they sell goods. It includes the
buyer’s name and address, the date of the sale, and details about the items sold, like the quantity,
description, and price. It also lists the total amount of the sale, any delivery costs, and the terms
for payment.
2. A bill of lading is a document given by the company transporting goods, like a trucking, shipping,
or airline service. It outlines the terms of the delivery, such as shipping details, costs, and who will
receive the goods.
3. A statement of account is a formal document sent to someone who owes money, showing the details
of what they already owe.
4. An official receipt is proof that the seller or their representative has received cash. It includes
information about the invoices that were paid and other payment details.
5. A deposit slip is a form with the depositor's name and account number, used to record details of money
or checks being deposited. Once it's validated, it confirms that the deposit was successfully made to the
account.
6. A purchase order is a document the buyer sends to the seller, authorizing them to deliver specific items
listed in the form.
7. A receiving report is a document that records details about goods received from a supplier, including
the quantities and descriptions of the items delivered.
8. A check is a written instruction from someone to their bank, telling the bank to pay a certain amount of
money from their account to the person named on the check. The person writing the check is the payor,
and the person receiving the money is the payee.
9. A purchase requisition is a written request from an employee or department within a company asking
the purchasing team to buy specific goods
10. A credit memorandum is a document the seller sends to the buyer to let them know that their account
balance has been reduced, usually because of a mistake or other reasons that need adjustments.
