Merchandising Businesses

What is a Merchandise Business? A merchandise business is a business that sells merchandise. In other words, instead of a service, a merchandise business sells goods. The “goods” a business has on hand is called inventory Essentially, the accounting system differs ONLY WHERE INVENTORY is concerned

Methods of Merchandise Accounting Periodic: inventory count would be made at the end of the period – hence the term periodic. The physical count would show how much inventory was missing, assuming that the difference was the amount that was sold.

Methods of Merchandise Accounting Perpetual: Now, thanks to technology, inventory systems can tell you exactly how much inventory is in the storeroom or on the floor. Using a bar code, the inventory count is perpetually kept up to date. Every time a cashier scans a product, it records the sale, but also reduces the inventory level.

Supplies versus Merchandise Supplies are purchased for use in running a business (e.g., office supplies – pens, paper, stamps, printer ink; cleaning supplies - paper towels, cleaners). Merchandise Inventory is purchased for RE-SALE. The idea is you buy goods and re-sell them for a higher price in order to make money.

The Concept of Cost of Goods Sold Interactive Show

The Concept of Cost of Goods Sold Beginning Inventory + All Purchases in the year - Discounts/Returns + Freight-In (cost of transportation to get the inventory to the store) = Cost of Goods Available for Sale. Cost of Goods available for Sale – Ending Inventory = COGS (Cost of Goods Sold)

Example A business with $20,000 of inventory on January 1st makes the following transactions: Jan. 10th, purchase: $7,500 Jan. 17th, purchase: $1,500 Jan. 21st, return defective goods: $900 Physical count of inventory on January 31st: $14,000 January sales: $40,000 January Operating Expenses: $17,000. Instructions: Calculate: Cost of Goods Sold Calculate: Net Income

COGS Beginning Inventory20, Add: Purchases9, Less: Purchase Returns Freight-in0.00 Cost of goods available for sale28, Less: Ending Inventory-14, Cost of Goods Sold14,100.00

Net Income Sales$40, Less: Cost of Goods Sold-14, Gross Profit25, Less: Operating Expenses-17, Net Income$8,900.00