Service Merchandising

Revenue from Services Net Sales

minus
Cost of Sales
minus
equals
Gross Profit
add or minus
Expenses Income or Expenses
equals equals
Profit Profit
1. Sales Invoice 6. Check
2. Bill of Lading 7. Purchase Requisition
3. Statement of 8. Purchase Order
Account 9. Receiving Report
4. Official Receipt 10. Credit Memorandum
5. Deposit Slips
 Purchase
Requisition • User Department

Purchase
Order • Purchasing Department

Invoice • Seller

Receiving • Receiving
Report Department

Compares • Account
Source Payable
Documents Department
 Cash Discounts
› Purchase Discounts – Buyer

Accounts Payable xxxx

Purchase Discount xxxx
Cash xxxx

› Sales Discounts – Seller

Cash xxxx
Sales Discount xxxx
Accounts Receivable xxxx
• Computation of Net savings

Invoice = P200,000
Terms = 2/10, n/30
Annual Interest Rate = 12%
Net savings = ______
 Trade Discount
› No entry
› Computation of Invoice Price

Example:
List Price = P5,000
Trade Discounts = 20% and10%
Invoice Price = __________
 Transportation Costs
› Transportation In / Freight in – inventoriable
› Transportation Out/ Freight out – Operating
Expense

Freight Terms Who Shoulders the Who Pays the Shipper?

Transportation Cost?

FOB Destination, Seller Seller

Freight Prepaid

FOB Destination, Seller Buyer

Freight Collect

FOB Shipping Point, Buyer Seller

Freight Prepaid

FOB Shipping Point, Buyer Buyer

Freight Collect
 Gross Sales

The journal entry to record the sale of merchandise for cash is as follows:

Cash 25,000
Sales 25,000
To record sale of merchandise for cash.
If the sale of merchandise is made on credit, the entry will be:

Accounts Receivable 25,000

Sales 25,000
To record sale of merchandising on credit.
 Sales Discount

Assume that G. Detoya Traders sold merchandise on Sept. 20 for P3,000;

terms 2/10, n/60. At the time of sale, the term is:

*Gross Method

Accounts Receivable 3,000

Sales 3,000
To record sales on credit; terms 2/10, n/60.
The customer may take advantage of the sales discount any time on or
before Sept. 30, which is 10 days after the date of invoice. If the client
paid on Sept. 30, the entry is:

Cash 2,940
Sales Discount 60
Accounts Receivable 3,000
To record collection on the Sept. 20
sale, discount taken.
 Sales Returns and Allowances

Each return or allowance is recorded as a debit to an account called

sales returns and allowances. An example of such transaction follows:

Sales Returns and Allowances 760

Accounts Receivable (or Cash) 760
To record return or allowance on
unsatisfactory merchandise.

 Credit Memorandum – is a formal acknowledgement that

the seller has reduced the amount owed by the customer.
 Transportation Out
Case no. 1. Assume that G. Detoya Traders sold merchandise totalling
P17,000 FOB destination, freight prepaid; terms 2/10, n/30. The
transportation costs amounted to P1,900. The entry to record this
transaction would be:

Accounts Receivable 17,000

Transportation Out 1,900
Sales 17,000
Cash 1,900
Sales on account; terms 2/10, n/30;
FOB destination, freight prepaid, P1,900
If this invoice is collected on Dec. 5, the sales discount will be
P340 (P17,000 x 2%). Transportation out is an operating expense.

Cash 16,660
Sales Discounts 340
Accounts Receivable 17,000
Case no. 2. Assume that G. Detoya Traders sold merchandise totalling
P17,000 FOB shipping point, freight collect; terms 2/10, n/30. The
transportation costs amounted to P1,900. The entry to record this
transaction would be:

Accounts Receivable 17,000

Sales 17,000
Sold merchandise on account; terms 2/10, n/30;
FOB shipping point, freight collect.
There is no debit to transportation out account since the
shipping term provided that the buyer should shoulder the
transportation costs. If this invoice is collected on Dec. 5, the
sales discount will be P340 (P17,000 x 2%). The entry would be:

Cash 16,660
Sales Discount 340
Accounts Receivable 17,000
Case no. 3. Now, assume that G. Detoya Traders sold merchandise
totalling P17,000 FOB destination, freight collect; terms 2/10, n/30. The
transportation costs amounted to P1,900. The entry to record this
transaction would be:

Accounts Receivable 15,100

Transportation Out 1,900
Sales 17,000
Sales on account; terms 2/10, n/30;
FOB destination, freight collect, P1,900.
Accounts receivable is decreased by the transportation charges paid
by the buyer for the benefit of the seller. If this invoice on Dec. 5, the
sales discount will be P340 (P17,000 x 2%) since the discount applies to
total sales.

Cash 14,760
Sales Discount 340
Accounts Receivable 15,100
Case no. 4. Assume further that G. Detoya Traders sold merchandise
totalling P17,000 FOB shipping point, freight prepaid; terms 2/10, n/30.
The transportation costs amounted to P1,900. The entry to record this
transaction would be:

Accounts Receivable 18,900

Cash 1,000
Sales 17,900
Sales on account; terms 2/10, n/30;
FOB shipping point, freight prepaid, P1,900.
If this invoice is collected on Dec. 5, the sales discount will be P340
(P17,000 x 2%). The discount only applies to total sales.

Cash 18,560
Sales Discount 340
Accounts Receivable 18,900
Merchandise Inventory, beginning XXXX
Purchases XXXX
Less: Purchases Returns and Allowances XXXX
Purchase Discounts XXXX XXXX
Net Purchases XXXX
Transportation In XXXX
Net Cost of Purchases XXXX
Goods Available for Sale (GAS) XXXX
Less: Merchandise Inventory, ending XXXX
Cost of Sales (COS) XXXX
 Purchases

Purchases 15,000
Accounts Payable 15,000

 Purchase Returns and Allowances

Accounts Payable 2,000

Purchase Returns and Allowances 2,000
 Purchase Discounts

Accounts Payable 13,000

Purchase Discounts 260
Cash 12,740

 Transportation In
› Use example entries in the book
Purchase of Goods
Purchases 700,000
Input Tax 84,000
Accounts Payable 784,000

Sale of Goods
Cash 1,120,000
Sales 1,000,000
Output Tax 120,000
Closing of the Accounts
Output Tax 120,000
Input Tax 84,000
VAT Payable 36,000

Payment of VAT
VAT Payable 36,000
Cash in Bank 36,000
 Distribution Costs or Selling Costs

 Administrative Expenses

 Other operating expenses

 Perpetual Inventory System

 Periodic Inventory System

 Periodic Perpetual

Accounts Receivable 10,000 Accounts Receivable 10,000

Sales 10,000 Sales 10,000

Cost of Sales 8,000

Inventory 8,000
 Periodic Perpetual

Sales Returns & 500 Sales Returns & 500

Allowance Allowance
Accounts Receivable 500 Accounts Receivable 500

Inventory 400
Cost of Sales 400
 Periodic Perpetual

Cash 9,310 Cash 9,310

Sales Discounts 190 Sales Discounts 190
Accounts Receivable 9,500 Accounts Receivable 9,500
 Periodic Perpetual

Purchases 6,000 Inventory 6,000

Accounts Payable 6,000 Accounts Payable 6,000
 Periodic Perpetual

Transportation In 200 Inventory 200

Cash 200 Cash 200
 Periodic Perpetual

Accounts Payable 300 Accounts Payable 300

Purchases Returns & 300 Inventory 300
Allowances
 Periodic Perpetual

Accounts Payable 5,700 Accounts Payable 5,700

Purchases Discounts 114 Inventory 114
Cash 5,586 Cash 5,586
 Periodic Perpetual

Income Summary 250,000

Inventory 250,000 (No entry required)
 Periodic Perpetual

Inventory 231,500
Income Summary 231,500 (No entry required)
 Periodic Perpetual

Shrinkage already effected in the prior Cost of Sales 360

entry Inventory 360