1. By Ms. Naira Partnerships-Merchandising Business

2. Merchandising Business A business that purchases and sells goods Goods are the business sells are called merchandise Example: The goods Macy’s sells are clothes, perfume, shoes, decorations, jewelry Example: The goods Target sells are clothes, shoes, decorations, jewelry, decorations, electronics Example: The goods Dr. Jay’s sells are clothes, sneakers

3. Purchasing Merchandise The price a business pays for the goods it purchases is called cost of merchandise The amount added to the cost of merchandise (in order to make a profit) to establish selling price is called markup. Example: Potato chips Store Owner pays 10 cents per bag Customer pays 25 cents per bag Markup is 10 cents per bag! (.25-.10=.10) Cost of Merchandise Selling price Markup

4. The selling price of merchandise MUST be greater than the cost of merchandise for a business to make a profit. Only Markup increases capital The revenue (money) earned from a sale includes both the cost of merchandise and markup Cost of merchandise, Selling price Markup, $85

5. Where do retail stores get their merchandise? VENDORS!!! A business from which merchandise is purchased or supplies or other assets are bought is called a VENDOR. Business need to more than merchandise, they need supplies (paper, ink, folders) and other assets (furniture, equipment, insurance) in order to operate

6. New Accounts Accounts for the cost of merchandise are kept in a separate division of the general ledger (pg. 225) Account used for recording the cost of merchandise is title Purchases. Only merchandise purchased to sell is recorded in PURCHASES account Purchases is classified as a cost account because it is in the cost of merchandise division in the chart of accounts (pg. 225) Since cost of merchandise reduces capital when the merchandise is purchased, PURCHASES has a normal debit balance.

7. Purchases DEBITCREDIT Normal Balance

8. Cash Purchase Transaction: Purchased $575 worth of merchandise. Check No. 290 $575.00 Cash Purchases $575.00 Debit PURCHASES account $575, to show increase in balance for this account Credit CASH account $575 to show decrease in balance for this account All CASH purchases will INCREASE PURCHASES and DECREASE CASH

9. Purchase on Account Transaction: Purchased $575 worth of merchandise on account. PurchaseInvoice No. 83 All ON ACCOUNT purchases will INCREASE PURCHASES and INCREASE ACCOUNTS PAYABLE All ON ACCOUNT purchases will INCREASE PURCHASES and INCREASE ACCOUNTS PAYABLE Purchases $575.00 Accounts Payable AP is a LIABILITY account, NORMAL BALANCE IS CREDIT SIDE, therefore it INCREASES on CREDIT SIDE. The liabilities balance is increasing.

10. Transaction: Paid $150 for Newspaper Add, check 2831 Debit Advertising Expense $150 (increases the balance ) Credit Cash $150 (decreases balance) Remember: Checks are equivalent to cash in the business world