Merchandising

Types of companies

Merchandising Company

A company that sells a “product” not a “service” (wholesalers and retailers)

Manufacturing Company

A company that produces the products and sells them to merchandising companies.

Net Income for a Merchandising Company

Profit Formula

$\text{Gross Profit}=\text{Revenue}-\text{Cost of Goods Sold}$

Net Income/Loss Formula

$\text{Net Income/Loss}=\text{Gross Profit}-\text{Expenses}$

• Income occurs when the $\text{Revenue}>\text{Expenses}+\text{Cost of Goods Sold}$
• Loss occurs when the $\text{Revenue}<\text{Expenses}+\text{Cost of Goods Sold}$

Why is Cost of Goods sold included in the income statement?

Because a company must pay for the items it sells.

Schedule of Cost of Goods Sold

Provides in detail how the Cost of goods sold is determined. It is done because all costs related to purchasing the merchandise must be recorded. $\text{Cost of Goods Sold}=\text{Beginning Inventory}+\text{Purchases}-\text{Ending Inventory}$

$\text{Net Purchases}=\text{Purchases}-\text{Purchase Returns and Allowances}-\text{Purchase Discounts}$

Merchandising Inventory

This account contains the value of all goods on hand for resale. A schedule of cost of goods sold contains the value of the inventory at the beginning and the end of the Fiscal Period

This is account is included in the Current Assets section of the balance sheet.

Cost of Goods Sold Accounts

Purchases

An account which records merchandise bought for resale (debit)

Purchase Returns and Allowances

A contra account to purchases which records merchandise return by the business (contra purchases account)

Purchases Discounts

A contra account to purchases which records discounts received by the business for paying quickly. (contra purchases account)

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Transportation-In

An account which records the cost of transport goods from the manufacturer to use (like an expense, debit balance)

Delivery Expense

An Expenses account which records the cost of transporting goods from us to the customers.

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Sales Returns and Allowances

A contra asset account to sales which records merchandise returned by our customers (contra revenue account)

Sales Discounts

A contra account to sales which records discounts taken by our customers for paying early. (contra revenue account)

Discounts are not recorded when the sale is made but rather when payment is received.

C.O.D (Cash on Delivery)

Payment is due when the goods are received

Receipt of Invoice

payment is due when the goods are delivered

Net 30

the full amount of the invoice is due 30 days from the invoice date

EOM

payment is due at the end of the month

10th following

payment is due on the 10th day of the following month

2/10 n/30

Receive a 2% discount off the invoice price if the payment is made within 10 day, the full amount must be paid within 30 days after the end of the month.

1/10 n/30 EOM

Receive a 1% discount off the invoice price if payment is made within 10 days, the full amount must be piad within 30 days after the end of the month.