FINANCIAL STATEMENT: MERCHANDISING BUSINESS - Functional Form

Income Statement
Net Sales Revenue obtained by deducting sales returns and allowances and
sales discount from gross sales. (*Sales is the principal source of revenue for a
merchandising business)
Cost of Sales (Cost of Goods Sold) the largest single expense of a
merchandising business. It represents the cost of the merchandise sold to
customers.
Under Perpetual Inventory System Cost of Goods sold is determined
each time a sales occur
Under Periodic Inventory System Cost of Goods sold is only determined
at the end of the accounting period once a physical count of the goods
has been conducted
Total Goods Available for Sale Merchandise Inventory Beginning + Net
Cost of Purchases
Net Purchases Gross Purchase Purchase Discount Purchase Returns
and Allowances
Net Cost of Purchases Net Purchases + Freight-In (*Freight-In is an
inventoriable cost and forms part of the cost of merchandised purchased
Cost of Goods Sold Total Goods Available for Sale Merchandise
Inventory End
Gross Profit represents the profit earned by an entity from selling of goods.
Obtained by Net Sales Revenue Cost of Sales
Other Income represents income earned from sources other than the primary
activity of the business
e.g. Interest Income, Rent Income, Gain on Sale of Asset, Dividend Income
Operating Expense ordinary and necessary expenses incurred in day-to-day
conduct of business operations
Selling and Distribution Expense expenses are directly related to the
selling activities of a business.
e.g. Advertising, Freight-Out, Representation & Entertainment, Sales
Commision, Salemen Salaries, Store Supplies Expense, Depreciation
Expense Store Equipment. Miscellaneous Distribution and Selling
Expense Keywords: Store, Sales, etc.
General and Administrative Expense are expenses incurred in the
general operations of the business
e.g. Miscellaneous Administrative Expenses, Rent Expense, Utilities,
 Doubtful Accounts, Depreciation Expense Office Equipment Keywords:
Office
Other Expense any other normal costs that are not significant enough
to be reported or expense that cannot be traced directly to operations.
Office Supplies Expense
e.g. Loss on Sale of Asset
Finance Cost costs incurred from borrowing money
e.g. Interest Expense, Discount Loss

Sales XXXXXX
Sales Discount (XXXXX)
Sales Returns and Allowances (XXXXX)
Net Sales XXXXXX

Merchandise Inventory, Beginning XXXXXX

Add: Net Cost of Purchase
Purchases XXXXXX
Purchase Discount XXXXX
Purchase Returns and Allowances XXXXX (XXXXX)
Net Purchase XXXXXX
Add: Freight-In XXXXXX_ XXXXXX _

Cost of Goods Available for Sale XXXXXX

Less: Merchandise, Ending
(XXXXX)
Cost of Goods Sold XXXXXX

MERCHANDISE BUSINESS
Income Statement
For the Year Ended December 31, 20XX
Note
Net sales 1 P XXXXXX
Cost of sales 2
(XXXXX)
Gross profit P
XXXXXX
Other Income 3 XXXXXX
Total Income P XXXXXX
Operating Expenses
Selling and Distribution 4 P XXXXXX
General and Administrative 5 XXXXXX
Other expenses 6 XXXXXX
Finance cost
XXXXXX____(XXXXXX) Net Income
P XXXXXX