Financial

Accounting I
Winter 2024-Lecture “10”
1
 Chapter 5
Accounting for
Merchandising
Operations

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without the prior written consent of McGraw-Hill Education. 5-2
Learning Objectives
1 Analyze and record transactions for merchandise SALES
using a PERPETUAL system.
2 Analyze and record transactions for merchandise SALES
using a PERIODIC system.

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution

without the prior written consent of McGraw-Hill Education. 5-3
 RECAP of INVENTORY SYSTEMS USED IN
MERCHANDISING COMPANY

Perpetual systems Periodic systems

continually update Accounting records of
accounting records merchandise transactions
for merchandising are updated ONLY at the
transactions end of the accounting
period

4
Learning Objective 1: Analyze and record
transactions for merchandise SALES using a
PERPETUAL system

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution

without the prior written consent of McGraw-Hill Education. 5-5
 Sale Transactions in a Merchandizing
Company
“Perpetual vs. Periodic Inventory
System”
1. Sale of Inventory
2. Recording Freight or Transportation Costs
3. Return of Inventory (Sale Return and Allowance)
4. Collection of amount due and Sale Discount

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution

without the prior written consent of McGraw-Hill Education. 5-6
 1. SALES of MERCHANDISE
ON CREDIT
• Revenues are reported when earned in accordance
with the revenue recognition principle. In a
merchandising company. revenues are earned
when the goods are transferred from seller to
buyer.

7
 1. SALES of MERCHANDISE
ON CREDIT
Each sales transaction for a seller of
merchandise involves two parts:

Revenue received in Recognition of the

the form of an asset cost of merchandise
from a customer. sold to a customer. 8
 1. SALES of MERCHANDISE ON CREDIT
(Perpetual Inventory System)

Date General Journal Debit Credit

5 Accounts receivable (1,500 units @ $14) 21,000

Sales 21,000

5 Cost of goods sold (1,500 units @ $10) 15,000

Merchandise inventory 15,000

1. The first entry records the sale of goods to a customer at the

retail (selling) price. 9
2. The second entry releases the goods from inventory at cost and
charges the goods to cost of goods sold.

Exercise5-4page234
 1. Sale of Merchandise on Credit
(Perpetual Vs. Periodic)

Perpetual Inventory System Periodic Inventory System

Date Account Dr. Cr. Account Dr. Cr.

May 5th Accounts Receivable 21,000 Accounts Receivable 21,000
Sales 21,000 Sales 21,000
May
5th Cost of Goods Sold 15,000
No-cost side 10
Merchandise Inventory 15,000 entry
 2. Payment of Freight Costs by
the Seller (Perpetual Vs.
Periodic)

Perpetual Inventory System Periodic Inventory System

Date Account Dr. Cr. Account Dr. Cr.

May Delivery Expenses 600 Delivery Expenses 600
6th 11
Cash Cash
600
600
 3. SALES RETURNS AND
ALLOWANCES
• Sales Returns occur when customers are
dissatisfied with merchandise and are
allowed to return the goods to the seller for
credit or a refund.
• Sales Allowances occur when
customers are dissatisfied, and the
seller allows a deduction from
the selling price.
• The normal balance of Sales Returns and
Allowances is a debit. 12
• Sales Returns and Allowances is a contra
revenue account to the Sales account.
 3. Return of Inventory (Sale Return and
Allowance)- Perpetual Vs. Periodic Inventory
System

1. The first entry reduces the balance owed by Under periodic inventory
the customer and records the goods System
returned at retail price. The ONLY entry reduces
2. The second entry records the physical the balance owed by
return of goods to inventory at cost and the customer and
removes the goods from the cost of goods records the goods
sold account. returned at retail
price.
Perpetual Inventory System Periodic Inventory System

Date Account Dr. Cr. Account Dr. Cr.

May Sales Return & Allowance 1,750
7th Sales Return & 1,750
Accounts Receivable 1,750 Allowance 13
Accounts Receivable 1,750
May Merchandise Inventory 1,250
7th No-cost side
Cost of Goods Sold 1,250
 4. Collection of Amount Due
and Sales Discounts
• A sales discount is the offer of a cash discount
to a customer in exchange for the prompt
payment of a balance due.
• Similar to Sales Returns and Allowances,
Sales Discounts is also a contra revenue
account with a normal debit balance.

14
 4. Collection of Amount Due and
Sales Discounts- Perpetual System

Date General Journal Debit Credit

5 Accounts receivable (1,500 units @ $14) 21,000

Sales 21,000

5 Cost of goods sold (1,500 units @ $10) 15,000

Merchandise inventory 15,000

7 Sales returns and allowances (125 units @ $14) 1,750

Accounts receivable 1,750

7 Merchandise inventory (125 units @ $10) 1,250

Cost of goods sold 1,250
15 Cash ($19,250 - 385) 18,865
Sales discounts ($19,250 x .02)
385
Accounts receivable ($21,000 - $1,750) 19,250
Sales Discount = (Invoice Value – Sales Return & Allowance ) × discount Percentage 15
Sales Discount = (21000-1,750) × 2% = 385
Cash due = 19250 – 385 = 18,865
 4. Collection of Amount Due and
Sales Discounts- Perpetual Vs
Periodic System

Perpetual Inventory System Periodic Inventory System

Date Account Dr. Cr. Account Dr. Cr.

May Cash 18,865
15th Sales Discount 385 Cash 18,865
16
Accounts Receivable 19,250 Sales Discount 385
Accounts Receivable 19,250
Question 2

Calculation of Net Sales

Sales, Gross 21,000
Less: Sales Return & Allowance
(1,750)
Less: Sales Discount
(385)
Net Sales
18,865

17
 Sales Transactions (Seller)
Perpetual vs. Periodic System
Transaction Perpetual Inventory System Periodic Inventory
System
Accounts Receivable Accounts Receivable
Sale OF INVENTORY ON CREDIT Sales Sales
Cost of Goods Sold
Merchandise Inventory
PAYMENT OF FREIGHT COSTS BY Delivery Expenses Delivery Expenses
THE Seller (FOB Destination) Cash Cash
Sales Return & Allowance Sales Return & Allowance
Return of Goods to the Seller Accounts Receivable Accounts Receivable
(Sales Return and Allowance)
Merchandise Inventory
Cost of Goods Sold
Collection of Amount Due within Cash Cash
the Discount Period Sales Discount Sales Discount
Accounts Receivable Accounts Receivable