 Merchandise Accounting Basics (pt.

1)

 Merchandising
 deals with the purchase of goods from suppliers to be sold to customers (sales) through
stores, as opposed to service business, where manpower or labor is required.
 In merchandising, goods are given to customers in exchange for money, while in service
business, you perform services (hence manpower/labor) in exchange for money.
 Merchandise- goods which will be sold to customers at a given price.
o For example: canned goods in a grocery store, books in a bookstore, cabinets
and tables in a furniture shop. Always remember that kung anong binebenta ng
business na yun, yun lang ang pwedeng maconsider na goods na pwedeng
ibenta sa mga customers. For example: hindi po goods ang furniture sa isang
grocery store, kasi mga food stuff, cleaners (detergent, dishwashing liquid),
paper goods (paper cups, paper plates), etc. ang TALAGANG BINEBENTA NILA
(pwede nilang ibenta yung furniture nila, but then, it’s not recorded as your
income but rather a gain/loss on the sale of an asset).
 Merchandise Accounting
 Accounting which deals with the recording, classifying, analyzing, and summarizing
transactions pertaining the purchase and sale of goods, as well as business operations
that occurred within a period.
o Kung sa service business, katawan ang puhunan, well dito, magbebenta ka ng
mga goods para sa mga tao (yes, staffs need to work as well). Dito involved ang:
 Purchases- ito yung mga goods na bibilhin mo from your suppliers,
which you will sell to customers. Synonymous ang purchase sa salitang
“bought”, so if you ever encounter a transaction that says “bought
goods”, purchases na yan. However, if not a product line of the business
ang binili mo (e.g. Furniture sa isang automotive parts shop), di siya
purchases. Di naman yan ang binebenta mo, bakit mo ibebenta, diba?
 When recording purchases, the account title is “Purchases”. Hindi
purchased, or purchase. Purchases is on the DEBIT side, kasi
expenses yan for the purchase of merchandise.
 There will be instances that the goods damaged is either
damaged, expired not to be sold to customers, or wrong item. In
this case, obvious naman na hindi natin pwedeng ibenta ang
defective goods or wrong goods sa customers. There is what we
call “Purchase Returns and Allowances” wherein it records the
amount of defective goods, with a corresponding cash refund (if
purchased by cash) or a deduction to the liability for purchases on
account. This account is CREDITED against purchases. Parang
pang-counter siya to get the net expenses.
 Also, there are instances wherein a supplier can be given a
discount to reduce the total amount of purchased products if it is
paid within the said discount period (to be discussed later). If
within the period siya, may discount na maaapply. If lampas na
 siya within discount period, wala nang discount. However, full
amount should be paid within the said number of days. In this
case, this is a “Purchase Discount” which is CREDITED against
purchases. Parang pang-counter siya to get the net expenses.
Why is it a deduction? When your supplier offer a discount, it
means a reduction in price na babayaran mo (reason for it to
deduct to purchases yung amount ng discount).
 Sales- revenue or income mo from selling goods. Sa service business,
“service income”, pero sa merchandising, “sales” ang tawag doon. Kapag
nagbenta ka ng goods sa isang customer, sales ang tawag doon. Pero
kapag nagbenta ka ng goods na hindi naman talaga part ng product line
ng business (e.g. furniture sa isang bookstore na nagbebenta ng books),
it is not considered as sales, but instead, you just disposed or sold an
asset.
 Sales, since it represents your revenue or income from selling
goods, is an income account and is DEBITED.
 There are instances wherein goods sold to customer are returned
due to defects, damages, or wrong goods sold. In this case, it is
what we call “Sales Returns and Allowances”. It is debited as a
counter to your sales account.
 There are also instances wherein the business can give discounts
to customers within a time range to encourage them to pay
sooner. If paid within the discount period, the discount is applied.
Pero kapag lampas na siya sa period, wala nang discount pero
you have to pay the full amount within that day (to be explained
later). This is what we call “Sales Discount” wherein it reduces
the amount of sales brought about by the reduction of price of the
goods you’ve sold. It is debited as a counter to your sales
account.
 In merchandise accounting, we have 2 inventory systems:
o Periodic Inventory System- dito sa method na ito, di natin kine-keep track ang
flow of inventory, kung may pumasok ba from purchases or sales returns, or
lumabas from sales or purchase returns. We record purchases as “purchases”
and sales as, well, “sales”. Saka lang malalaman ang natitirang inventory if
gumawa ng physical count yung business.
o Perpetual Inventory System- dito kine-keep track natin ang flow of inventory,
kung may pumasok ba from purchases or sales returns, or lumabas from sales or
purchase returns. It’s suggested na sa isang separate paper, gawa kayo ng
inventory sheet para makeep track mo yung goods na papasok at lalabas, para
di ka na mahirapan at matagalang magcompute. Pag may purchases or sales,
record it.
 Merchandise Inventory replaces the following accounts under periodic
system:
 Purchases
 Freight In
 Purchase Discount
 Purchase Returns and Allowances
  Cost of Sales/Cost of Goods Sold is either debited or credited in the ff.
situations:
 If it involves a sale, debit COGS and credit merchandise inventory,
denoting that there is an outflow of goods brought about by sales.
 If it involves a sales return, credit debit merchandise inventory and
credit COGS, denoting an inflow of goods.
 Discounts
o Una sa lahat, why do we give/accept discount? Kapag may sale ang department
store, andaming mga customers ang gustong bumili ng shirts, jeans, or kahit ano
na may discount. Ang sarap sa eyes kapag nakita mo nang hawak-hawak mo
yang Nike rubber shoes mo na may discount. Pero, back to the topic.
o Ang discount is used to encourage customers to pay early. Deduction siya on the
total price of the goods, para mabawasan ang babayaran mo. Now, we have 2
discounts which can be granted to customers:
 Trade Discounts- percentage reduction of price of the goods ito, and applied
immediately. That means na, upon purchasing/selling the goods, mababawasan agad
ang amount nito. Kapag nakita mo na may less 1%, trade discount na agad ito, and
deduct mo na agad sa price. No purchase/sales discount. For example:
 Purchased goods for 10,000 less 2%. 10,000-(10,000x0.02)=9800 nalang babayaran
mo, no discount account involved upon recording.
 For example: purchased goods for P3,500 less 2%. So, P3500-P70 (computed as
3500x2%) = P3430.
 Cash Discount- ginagamit ito para maencourage ang customer to pay early, and thus,
discount titles shown above will now be used.
o For example, kapag nakalagay sa terms ay 2/10, n/30, ganito ang interpretations:
 2/10: There is 2% discount if the payment of goods sold (purchased) is
collected (paid) within 10 days.
 n/30: Full amount should be collected (paid) within 30 days from day of
purchase/sale. No discount involved, kasi lampas na siya sa period.
 For example: On July 07, 2019, a customer purchased goods
worth P10,000 on account. Terms: 2/10, n/30.
o The discount period for 10 days would be from July 07 to
17. If the customer paid the full amount within these dates,
a 2% discount will be provided.
 Whether or not discount will be provided for
full/partial payment (collection) for goods will be at
the discretion of the business. Kung gusto nila na
kapag full payment lang sila magppaadiscount, yun
ang gagawin nila. If papayag silang magpadiscount
kahit partial payment, then there is discount on
partial payment. If the problem provided is silent,
the assumption is that discount will be effective if
amount is fully paid within the discount period.
 Freight Transactions
 Freight is cost of shipping/delivery to receive (in the case of purchases) goods or to bring
the goods to the customer (in the case of sales). Shipping cost ito, parang Lazada. Diba
may shipping costs doon depende sa item na binili mo? Oo.
 It is important to know who must (and will) pay the freight and who paid it.
 FOB Shipping Point- the responsibility of paying the freight should be the BUYER of
the goods. Si buyer ang dapat magbayad ng freight charges. Up until the point that the
goods are loaded to the delivery vehicle, ready to be shipped, the goods are free. When
the delivery vehicle starts its journey to deliver the goods, saka lang magiging in effect
yung FOB Shipping Point, that is, whatever happens to the goods, the buyer would be
liable to it (also he will shoulder freight costs).
o Since si buyer ang magbabayad, the buyer will pay for freight charges once the
goods have been delivered to him. This is FREIGHT IN on BUYER SIDE.
 FOB Destination - the responsibility of paying the freight should be the SELLER of the
goods. Si seller ang dapat magbayad ng freight charges. Si SELLER ang responsable
sa lahat ng mga pwedeng posibleng mangyari sa goods na ibebenta niya, either it be
destroyed or lost, or any happenstance na involving the loss of goods before it was
delivered. Automatically, SELLER will pay as soon as goods are on its way to customer.
THIS IS FREIGHT OUT ON SELLER SIDE.
 Freight Collect - the buyer paid the freight costs.
 Freight Prepaid - the seller paid the freight costs.
 The question: pwede bang si buyer ang magbayad ng freight sa FOB Destination, and
vice versa? YES. Paano?
 FOB Shipping Point, Freight Prepaid: Si buyer ang magbabayad ng freight pero
binayaran ni SELLER. In this case, since si seller ang nagbayad, maiincrease ang
liability ni buyer. Siya dapat ang magbabayad eh, pero si seller na ang nagbayad. It
represents an obligation by the buyer to pay the seller what he owes to him for gratitude
(in this case, buyer paid for the seller). As for the seller side, increase siya in receivables
na matatanggap, pero decrease in cash kasi siya ang nagbayad ng freight charges.

 FOB Destination, Freight Collect: Si seller ang dapat magbayad ng freight, pero si
buyer na ang nagbayad. In this case, decrease liability of the buyer and receivables of
the seller.