A Synthesis of
MERCHANDISING OPERATIONS
Unlike service concern where the business generates income from rendering of services
to customers or clients, merchandising business generates revenue from sale of goods or
commodities that it buys. The business, therefore could be a buyer at one hand and a seller on
the other hand. Basically, there are two (2) major activities that are involved in a merchandising
business, these are buying and selling activities.
Statement of Financial Performance under Service concern follows the single step
wherein Service revenue is deducted by the operating expenses to arrive at Profit or loss while
in merchandising business follows a multiple step form wherein there are various steps needed
before we arrive at profit or loss.
There are two systems used in keeping of merchandising inventory records. These are
periodic and perpetual inventory system.
Perpetual inventory provides a highly detailed view of changes in inventory with
immediate reporting of the amount of inventory in stock, and accurately reflects the level of
goods on hand. Within this system, a company makes no effort at keeping detailed inventory
records of products on hand; rather, purchases of goods are recorded as a debit to the
inventory account.
Purchases, freight in, purchase return and allowances, purchase discount and other
increase and decrease in inventory are recorded in the inventory account. Cost of good sold is
also updated each time a sale or sales return is made.
On the other hand, under the periodic inventory system the inventory account is updated
only when a physical count of inventory is performed. Thus, the amount of inventory and Cost
of good sold are determined periodically. The calculation of the Cost of good sold under this
inventory system is shown below.
Beginning inventory Pxx
Add: Net purchases xx
Less: Ending Inventory (Physical count) xx
Cost of Good Sold xx
Furthermore, under the periodic system, purchases of inventory are debited to purchases
account, shipping cost are debited to freight in account, purchase return is credited to purchase
return account t and purchase discount are credited to purchase discount account. No entry
made to recognize cost of good sold when inventory is sold.
Net purchases is computed as follows:
Purchases Pxx
Add: Freight in xx
Less: purchase return xx
Purchase discount xx
Net Purchases xx
To get the gross profit and net profit
Net sales P xx
Cost of Good Sold (xx)
Gross profit xx
Less: Expenses xx
Profit Pxx
