Accounting For Merchandise Business (Perakaunan kepada Perniagaan Pembarangan)

Accounting For Merchandise Business (Perakaunan kepada Perniagaan Pembarangan)

What is Merchandising Business?

Merchandising business purchase goods that are ready for sale and then sell them to customers. Merchandising companies include auto dealerships, clothing stores, supermarkets, and so on, all of which earn revenue by selling goods to customers.

Perniagaan pembarangan melibatkan belian dan jualan barang niaga secara fizikal. Perniagaan akan membeli barang siap daripada kilang atau pembekal lalu menjual semula barang niaga yang dibeli kepada kedai runcit lain atau pengguna akhir. Jualan barang niaga merupakan hasil utama bagi perniagaan pembarangan.

The Operating Cycle of Merchandising Business

Step 1 : A company spends some cash to purchase merchandise.

Langkah 1 : Perniagaan mengeluarkan tunai untuk membeli barang niaga dari kilang atau pembekal.

Step 2 : Merchandise will keep at store as inventory.

Langkah 2 : Barang niaga yang dibeli merupakan inventori perniagaan dan ia akan simpan di store sehinggalah ia dijual.

Step 3 : The company generates revenue by selling merchandise inventory to customers. The company receives cash either at the time the revenues are generated or later by collecting an accounts receivable.

Langkah 3 : Perniagaan akan memperoleh hasil melalui jualan inventory barang niaga. Perniagaan akan menerima tunai dengan segera semasa menghantar barang kepada pelanggan ataupun menjual barang secara hutang.

Step 4 : After several days, the company will receive the payment (cash) form account receivable. The company use the cash to purchase again merchandise.

Selepas beberapa hari, perniagaan akan menerima tunai daripada penghutang. Perniagaan akan menggunakan tunai tersebut untuk membeli semula inventory barang niaga. Kitaran operasi perniagaan akan dijalankan secara berterusan.

Difference between Merchandising Business & Service Business

Aspect	Merchandising Business	Service Business
Source of Revenue	Company will make revenue and profits off the inventory you sell. The revenue of the account called sales.	Company will generate revenue and profit by providing services to customers. The revenue of the account called fees earned.
Inventory	Current and future inventory be kept in reserves.	No need to keep any inventory.
Freight Costs	Freight costs will involve in merchandise business when a company is transporting their inventory to other locations.	No need to bear any freight costs.
Operating Cycle	Merchandising businesses typically receive cash, buy inventory, merchandise the inventory, sell the goods and account for sales on the books.	A service business has fewer steps that generally only consist of receiving cash, performing services and accounting for the sale of those services.
Format of Income Statement

 

Periodic Inventory System VS Perpetual Inventory System

1) Perpetual inventory system is an inventory system that each purchase and sale of merchandise is recorded in the inventory account and related subsidiary ledger. In this way, the amount of merchandise available for sale and the amount sold are continuously (perpetually) updated in the inventory records.

Sistem inventori berterusan mempunyai rekod inventori yang disimpan secara terperinci. Kos barang boleh dijual (cost of merchandise sold) dapat ditentukan pada masa jualan berlaku. Rekod pergerakan inventori disediakan secara berterusan dengan menggunakan kad stok atau lejar stok inventori. Dengan sistem inventori berterusan perniagaan dapat mengetahui baki dalam Akaun Inventori (Merchandising Inventory account) perniagaan pada setiap masa. Setiap urus niaga yang memberikan kesan kepada kos inventori seperti kos pengangkutan, diskaun barang niaga, dan sebagainya akan direkodkan ke dalam Akaun Inventori.

2) Periodic inventory system is an inventory system that the inventory does not show the amount of merchandise available for sale and the amount sold. A listing of inventory on hand, called a physical inventory, is prepared at the end of the accounting period. This physical inventory is used to determine the cost of merchandise on hand at the end of the period and the cost of merchandise sold during the period.

Dalam sistem inventori berkala, kos inventori dan kos barang dijual bagi setiap inventori yang keluar masuk tidak direkodkan secara terperinci. Nilai inventori hanya diketahui apabila pengiraan secara fizikal dibuat ke atas inventori yang ada dalam premis perniagaan pada akhir tempoh perakaunan untuk penyediaan penyata kewangan perniagaan.

Journal Entry Record

Transactions	Periodic Inventory System	Perpetual Inventory System
Purchase inventory on account	Dt : Purchases Ct : Account payable	Dt : Merchandising inventory Ct : Account payable
Purchase inventory by cash	Dt : Purchases Ct : Cash	Dt : Merchandising inventory Ct : Cash
Purchase return of merchandise on account	Dt : Account payable Ct : Purchases Return	Dt : Account payable Ct : Merchandising inventory
Purchase return of merchandise by cash	Dt : Cash Ct : Purchases Return	Dt : Cash Ct : Merchandising inventory
Sale of merchandise by cash or on account	Dt : Account receivable / Cash Ct : Sales	Dt : Account Receivable / Cash Ct : Sales           Dt : Cost of Merchandising Sold Ct : Merchandising Inventory
Sale return of merchandise by cash or on account	Dt : Sales Return Ct : Account receivable	Dt : Sales Return & Allowance Ct : Account Receivable   Dt : Merchandising Inventory Ct : Cost of Merchandising Sold
Sales discount	Dt : Accts. Payable Ct : Cash Ct : Sales Discount	Dt : Accts. Payable Ct : Cash Ct : Merchandising Inventory

 

Selling and Buying Merchandise Inventory (Perpetual Inventory System)

Journal Entry Record

1) Purchases Inventory on Account

Seller			Buyer
Description	Dt (RM)	Ct (RM)	Description	Dt (RM)	Ct (RM)
Account Receivable	XXXX		Merchandise Inventory	XXXX
Sales		XXXX	Account Payable		XXXX
(Record the sales of merchandise inventory on account based on selling price)			(Record the purchase of merchandise inventory on account based on selling price)
Cost of Merchandise Sold	XXX
Merchandise      Inventory		XXX
(Record the sales of merchandise inventory on account based on the cost of merchandise sold)

 

2) Credit Terms

The terms for when payments for merchandise are to be made are called the credit terms.

Purchase / cash discount is a type of discount that may offer by a seller to buyer to encourage the buyer to pay before the end of the credit period, the seller may offer a discount.

Diskaun tunai ialah sejenis diskaun yang diberikan kepada pembeli untuk menggalakkan pembeli membayar hutang dengan segera atau secepat mungkin.

For example: the terms are expressed as 2/10, n/30 and are read as “2% discount if paid within 10 days, net amount due within 30 days.” It means that a seller may offer a 2% discount if the buyer pays within 10 days of the invoice date. If the buyer does not take the discount, the total invoice amount is due within 30 days.

Purchases/cash discounts will reduce the cost of the merchandise purchased by buyer. So, the buyer needs to record merchandise inventory account at credit side with the cash discount amount that buyer receive in the journal entry.

A seller may grant customers a variety of discounts, called customer discounts, to encourage customers:

·         to act in a way benefiting the seller

·         to purchase in volume or order early

·         to pay their invoice early

For example, a seller may offer credit terms of 2/10, n/30, which provides a 2% sales discount if the invoice is paid within 10 days.

Example for sales discount record:

Seller			Buyer
Description	Dt (RM)	Ct (RM)	Description	Dt (RM)	Ct (RM)
Cash	XXXX		Account payable	XXXX
Sales Discounts	XX		Merchandise      Inventory		XX
Account      Receivable		XXXX	Cash		XXXX
(Record receive payment by customer within discount period)			(Record the payment was made within discount period)

 

3) Freight Terms

Freight terms of a sale indicate when ownership (title and control) of the merchandise passes from the seller to the buyer. This point determines whether the buyer or the seller pays the freight costs.

a) FOB shipping point

FOB (free on board) shipping point is a freight term that the buyer pays the freight costs from the shipping point to the final destination.

Transportation cost is a part of the buyer’s total cost of purchasing inventory and it added to the cost of the inventory by debiting Merchandise Inventory at the journal entry.

Seller			Buyer
Description	Dt (RM)	Ct (RM)	Description	Dt (RM)	Ct (RM)
			Merchandise Inventory	XXX
			Cash / Account Payable		XXX
No Entry.			(Record transportation costs for delivery of merchandise sold)

 

b) FOB destination

FOB (free on board) destination means that the seller pays the freight costs from the shipping point to the buyer’s final destination.

When the seller pays the delivery charges, the seller debits Delivery Expense / Freight Out / Transportation Out at journal entry. Delivery expense is a type of selling expense.

Seller			Buyer
Description	Dt (RM)	Ct (RM)	Description	Dt (RM)	Ct (RM)
Transportation Out	XXX
Cash		XXX
(Record paid transportation costs for delivery of merchandise sold)			No Entry.

 

4) Customer Returns and Allowances

Merchandise sold may be returned to the seller (returns). In other cases, the seller may reduce the initial selling price (allowances). This may occur if the merchandise is defective, damaged during shipment, or does not meet the buyer’s expectations.

 

Seller			Buyer
Description	Dt (RM)	Ct (RM)	Description	Dt (RM)	Ct (RM)
Sales Returns and Allowances	XXXX		Account payable	XXXX
Account      Receivable		XXXX	Merchandise      Inventory		XXXX
(Record the merchandise returned based on selling price)			(Record the merchandise returned based on selling price)
Merchandise Inventory	XXX
Cost of      Merchandise Sold		XXX
(Record the merchandise returned based on the cost of merchandise sold)
Cash	XXX		Account Payable	XXX
Account      Receivable		XXX	Cash		XXX
(Record receive payment by customer after merchandise returned)			(Record the payment was made after merchandise returned)

 

5) Freight Prepayment

The seller may prepay the freight, even though the terms are FOB shipping point. The seller will then add the freight to the invoice. So, the buyer debits Merchandise Inventory for the total amount of the invoice, including the freight. Any discount terms would not apply to the prepaid freight.

 

6) Cash Sales

a) Using cash

Seller			Buyer
Description	Dt (RM)	Ct (RM)	Description	Dt (RM)	Ct (RM)
Cash	XXXX		Merchandise Inventory	XXXX
Sales		XXXX	Cash		XXXX
(Record the cash sales of merchandise inventory based on selling price)			(Record the purchase of merchandise inventory by cash based on selling price)
Cost of Merchandise Sold	XXX
Merchandise      Inventory		XXX
(Record the cost of merchandise sold)

 

b) Using Credit Card

Sales may be made to customers using credit cards such as MasterCard or VISA.  Any credit card processing fees charged by the clearinghouse or issuing bank are periodically recorded as a type of administrative expense.

Buyer
Description	Debit (RM)	Credit (RM)
Credit card expense	XXXX
Cash		XXXX
(Record service charges on credit card sales for the month)

 

7) Sales Taxes

In certain cases, tax is levied on sales of merchandise. The liability for the sales tax is incurred when the sale is made. At the time of a cash sale, the seller collects the sales tax. When a sale is made on account, the seller charges the tax to the buyer by debiting Accounts Receivable. The seller credits the sales account for the amount of the sale and credits the tax to Sales Tax Payable.

Cukai jualan ialah sejenis cukai yang perlu dibayar oleh oleh pembeli untuk sesetengah barang dan perkhidmatan. Apabila pembeli membeli barang niaga yang melibatkan cukai jualan secara hutang, maka penjual sementara tidak dapat menyerahkan cukai jualan tersebut kepada Kastam Diraja Malaysia. Oleh itu, cukai jualan belum bayar ini merupakan liabiliti semasa perniagaan.

Seller
Description	Debit (RM)	Credit (RM)
Account Receivable	XXXX
Sales		XXXX
Sales Tax Payable		XX
(Record the sales of merchandise and sales tax payable)
Sales Tax Payable	XXX
Cash		XXX
(Record the payment of sales tax payable)

 

8) Trade Discounts

Trade discounts is businesses often offer special discounts to government agencies or businesses that order large quantities. The sellers and buyers normally record the net prices merchandise in their accounts.

Diskaun niaga ialah sejenis diskaun yang diberikan kepada pembeli untuk menggalakan pembeli membeli barang niaga dalam kuantiti yang banyak.

9) Adjusting Entry for Inventory Shrinkage

Under the perpetual inventory system, the balance of the merchandise inventory account is supposed to be the same as the amount of merchandise available for sale at that point in time. Retailers normally experience some loss of inventory due to shoplifting, employee theft, or errors. Thus, the physical inventory on hand at the end of the accounting period is usually less than the balance of Merchandise Inventory. This difference is called inventory shrinkage / inventory shortage. So, the business needs to do adjustment entry for inventory shrinkage. Inventory shrinkage will increase the cost of merchandise sold.

Di bawah sistem inventori berterusan, baki akaun inventori barang niaga haruslah sama dengan jumlah barang niaga yang tersedia untuk dijual pada waktu itu. Walaubagaimanapun, pengecutan inventori / penyusutan inventori juga akan berlaku apabila jumlah kuantiti inventori fizikal yang masih ada dalam stok kurang daripada jumlah kuantiti inventori yang dicatatkan dalam senarai sistem inventori. Perbezaan tersebut mungkin berlaku kerana kesalahan perkakas, barang rosak atau hilang, atau kecurian dari titik pembelian dari pembekal ke tempat penjualan. Oleh itu, perniagaan perlu membuat pelarasan tentang pengecutan inventori ini dalam catatan journal. Pengecutan inventori akan meningkatkan kos barang barang untuk dijual.

Example :

The Format of Financial Statement for Merchandising Business

1) Multiple-Step Statement of Profit or Loss

Easy step to remember the format:

Net Income = Net Sales – Cost of Merchandise Sold – Selling Expenses – Administrative Expenses + Other Income – Other Expense

OR

Net Income = Gross profit – Operating Expenses + Other Income – Other Expense

*** Additional formula:

Net Sales = Sales – Sales Returns and Allowances

Cost of Merchandise Sold = Beginning merchandise inventory + Net purchases cost (Purchases –Purchases return and allowances + Freight cost) – Ending merchandise inventory

Format:

JLCY Company Statement of Profit or Loss For the Year Ended December 31, 2020
	RM	RM	RM
Sales			708255
(-) Cost of Merchandise Sold			525305
Gross Profit			182950
Deduce: Operating Expenses
Selling Expenses
Sales salaries expense	53430
Advertising expense	10860
Depreciation expense (Store equipment)	3100
Delivery expense	2800
Miscellaneous selling expense	630
Total selling expenses		70820
Administrative expenses
Office salaries expense	21020
Rent expense	8100
Depreciation expense (Office equipment)	2490
Insurance expense	1910
Office supplies expense	610
Miscellaneous administrative expense	760
Total administrative expenses		34890
Total Operating Expenses			105710
Income from Operations			77240
(+) Other Income:
Rent revenue			600
			77840
(-) Other Expense:
Interest expense			2440
Net Income			75400

 

2) Single-Step Statement of Profit or Loss Example

Easy step to remember the format:

Net Income = Total revenues – Total expenses

Format:

JLCY Company Statement of Profit or Loss For the Year Ended December 31, 2020
	RM	RM
Revenues
Sales		708255
Rent revenue		600
Total Revenue		708855
Deduct: Expenses
Cost of merchandise sold	525305
Selling expenses	70820
Administrative expenses	34890
Interest expense	2440
Total Expense		633455
Net Income		75400

 

3) Report Form of Statement of Financial Position

Format:

JLCY Company Statement of Financial Position December 31, 2020
	RM	RM	RM
Assets
Current Assets
Cash		52950
Account receivable		91080
Merchandise inventory		62150
Office supplies		480
Prepaid expenses		2650
Total current assets			209310
Property, Plant, and Equipment
Land		50000
Building		100000
Truck	30000
(-) Accumulated depreciation – Truck	10000	20000
Store equipment	27100
(-) Accumulated depreciation – Store equipment	5700	21400
Office equipment	15570
(-) Accumulated depreciation – Office equipment	4720	10850
Total property, plant, and equipment			202250
Total Assets			411560
Liabilities
Current Liabilities
Accounts payable		22450
Note payable (current portion)		5000
Overdraft Bank		10000
Unearned revenue		1140
Expenses payable		1800
Total current liabilities			40360
Long-term Liabilities
Bank Loan		100000
Note payable (final payment due in 5 years)		20000
Bonds		25000
Debenture		15000
Total long-term liabilities			160000
Total Liabilities			200360
Owner’s Equity
Owner, capital, January 1, 2020		153800
(+) Net income of the year		75400
		229200
(-) Owner, drawing		18000
Owner, capital, December 31, 2020			211200
Total Liabilities and Owner’s Equity			411560