Merchandising Operations Lecture Notes

Introduction to Merchandising Operations

• Focus on Smart Touch Learning (service business)
  • Provides online courses in accounting, economics, marketing, and management.
  • Service business: provides a service in exchange for a fee.
• Introduction of merchandising business.
  • Merchandiser: sells merchandise or goods to customers.
  • Merchandise inventory: asset account, normal debit balance, listed under current assets on the balance sheet.

Types of Merchandisers

• Wholesalers: Buy goods from manufacturers and sell to retailers.
• Retailers: Buy goods from manufacturers or wholesalers and sell to consumers.

Merchandising Operating Cycle

1. Purchasing inventory from a vendor.
2. Selling goods (usually on account, recording accounts receivable).
3. Collecting cash from customers (typically within 1-2 months).

Financial Statements Comparison

• Service company income statement:

  • Revenues - Expenses = Net Income

• Merchandising income statement:

  • Sales Revenue: Total amount received from selling products.
  • Cost of Goods Sold (COGS): Expense representing the cost of merchandise inventory sold.
  • Gross Profit: Sales Revenue - COGS
  • Operating Expenses: Expenses incurred in ongoing operations, excluding COGS.
  • Gross Profit - Operating Expenses = Net Income

• Balance Sheets Differences:

  • Merchandiser balance sheets include merchandise inventory as a current asset.
  • Listed in order of liquidity, usually below accounts receivable.

Inventory Systems

• Periodic Inventory System:
  • Requires physical inventory count to determine quantity on hand.
  • Often used by businesses without optical scanning registers (e.g., small retail stores).
• Perpetual Inventory System:
  • Computerized, keeps a running record of inventory.
  • Uses optical scanning devices for bar codes.
  • More accurate and provides real-time inventory updates.

Advantages of Perpetual Inventory System

• Records units purchased, cost, units sold, and sales/cost amounts.
• Links merchandise inventory records to purchasing and sales data.
• Provides up-to-the-minute inventory details.
• Bar codes link to merchandise inventory and cost data.

Importance of Physical Inventory Counts

• Despite perpetual systems, physical counts are necessary due to potential discrepancies from theft, spoilage, or damage.
• Allows comparison and adjustment of inventory records.

Conclusion

• Understanding merchandising operations is crucial before delving into detailed transactions for merchandisers.