Merchandising Business

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Terms

2/10, n/30

Read as “Two, ten, net thirty” If the bill is paid within 10 days, a cash discount of 2% will be given. Otherwise, the full amount of the invoice is due within 30 days after the invoice date. Terms can vary

30 Days or Net 30

Full amount of invoice is due 30 days after the date on the invoice.

On Account

The full amount of the invoice is due when the invoice is received (A/P or A/R).

C.O.D (Cash on Delivery)

Goods must be paid for with cash at the time they are delivered.

Merchandise Firm

Any business that buys merchandise or goods to resell for a profit

Merchandise Inventory

The quantity of merchandise to be resold

Cost Of Good Sold

The term ‘Cost of Goods Sold’ refers to the amount: Of inventory that was sold during the fiscal period. It is determined by taking a ‘physical inventory.’ eg. Merchandise Purchased $10,000 Physical Inventory $ 2,000 Cost of Goods Sold $ 8,000

Physical Inventory

The unsold goods are physcially counted once a year.

Gross Profit

The term ‘Gross Profit’ refers to the amount: An item is sold for minus how much it was purchased for eg. USB Bracelet from China $4.60 Sold for $10.00 Gross Profit $5.40

Inventory System

To determine the accounting for inventory two possible methods can be used: Periodic Inventory System The cost of the inventory sold is determined at the end of the fiscal period (usually once a year) PROS: easy to manage, faster, and inexpensive CONS: amount of inventory on hand cannot be determined unless a physical inventory count is performed (this means the inventory numbers are misstated throughout the fiscal year) Perpetual Inventory System Inventory is updated on a continuous basis (more details later)

Periodic Inventory System

The cost of goods that were sold is determined ‘periodically’.. only once a year! It is done in the same fashion as determining how many supplies were used in the fiscal period.

Sales Return and Allowances

Sometimes, merchandise is returned—or a partial allowance is given—after the sale.

Purchase Returns and Allowances

Purchase Returns and Allowances are treated in the same manner as Sales R & A.

Cash Discounts

A reduction in the amount owed if payment is made on or before the discount date stated on the bill Incentive for the customer to pay the invoice early

A ‘good’ (anything really) Bought for a certain price Sold for a higher price Goods are bought and sold for profit! Can of coke in store: $1.00 Can of coke from factory: $0.24 ‘Gross Profit’ $ 0.76

COFS(cost of good sold) formula

Cost of beginning goods + Cost of goods purchased - Cost of ending inventory = Cost of goods sold.

Cost of beginning goods + Cost of goods purchased - Cost if goods sold = Cost ending inventory.

Revised Cost of Goods Formula

Beginning Inventory + Net cost of purchases - Ending inventory = Cost of good sold

Net sales Formula

Sales revenue – Sales discounts – Sales returns and allowances.

Gross margin Formula

Net sales – Cost of goods sold.