Basics of Merchandising Operations

Introduction to Merchandising

• Merchandising is a major global industry.
• A merchandising company buys goods to resell at a profit.
• Two types:
  • Retail: Sells directly to customers.
  • Wholesale: Buys in bulk from manufacturers and sells to retailers or other wholesalers.

Operating Cycle

• Merchandising companies have a longer operating cycle than service companies.
• Service companies sell services, not tangible goods.
• Merchandising companies engage in tangible goods' purchase and resale.
  • Purchase of inventory and eventual sales lengthen the cycle.

Measuring Income

• Sales Revenue: Primary source of revenue.
  • Example: Selling 5 bottles of water at $1 each.
  • Cost of Goods Sold (COGS): Total cost of merchandise sold.
  • Gross Profit = Sales Revenue - COGS
  • Net Income: Gross Profit minus Operating Expenses.

Inventory Systems

• Two main systems:
  • Perpetual System:
    • Maintains continuous detailed records of inventory.
    • Records COGS each sale.
    • Ideal for high-value merchandise.
  • Periodic System:
    • Updates inventory at specific intervals.
    • COGS determined by a count at period's end.

Flow of Costs for Merchandising Company

• Begin with Beginning Inventory.
• Add Cost of Goods Purchased.
• Calculate Cost of Goods Available for Sale.
• Ending Inventory: Unsold goods at period's end.
• COGS: Goods available for sale minus ending inventory.

Recording Purchases of Merchandise

• Purchases made with cash or credit.
• Importance of supporting documents like purchase invoices.
• Example of recording:
  • Buyer uses a purchase invoice from seller.
  • Journal entry involves debiting inventory and crediting accounts payable.

Freight Costs and FOB Terms

• FOB Shipping Point:
  • Buyer pays freight costs.
  • Ownership transfers at seller's business.
• FOB Destination:
  • Seller pays freight costs.
  • Ownership transfers at buyer's business.
• Examples show how different FOB terms affect journal entries.

Purchases Returns and Allowances

• Returns: Goods returned for credit or refund.
• Allowances: Discounts given for defective goods kept by buyer.
• Example: Return of a defective microwave recorded by adjusting inventory and accounts payable.

Purchase Discounts

• Credit terms: Discounts for prompt payment.
  • Benefits both buyer and seller.
  • Example: 2/10, n/30 indicates a 2% discount if paid within 10 days.
• Recording of discounts affects inventory value and cash payments.

Summary

• The video covers detailed aspects of recording and understanding merchandising operations.
• Future videos will address sales of merchandise.

Conclusion

• For any questions, leave a comment.
• Stay tuned for future content.