{"id":79,"date":"2015-03-18T23:11:27","date_gmt":"2015-03-18T23:11:27","guid":{"rendered":"https:\/\/courses.candelalearning.com\/finacct2x10xmaster\/?post_type=chapter&p=79"},"modified":"2017-08-22T19:36:32","modified_gmt":"2017-08-22T19:36:32","slug":"the-account-needed-for-a-merchandising-business","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/chapter\/the-account-needed-for-a-merchandising-business\/","title":{"raw":"Merchandising Business","rendered":"Merchandising Business"},"content":{"raw":"In Unit 1 we introduced the three main types of businesses, merchandising, service and manufacturing.\u00a0Merchandising companies purchase goods that are ready for sale and then sell them to customers. Merchandising companies include auto dealerships, clothing stores, and supermarkets, all of which earn revenue by selling goods to customers.\r\n

In a merchandising sales transaction, the seller sells a product and transfers the legal ownership (title) of the goods to the buyer.\u00a0 A business document called an invoice (a sales invoice for the seller and a purchase invoice for the buyer) becomes the basis for recording the sale.<\/p>\r\n

The following video provides an overview of the difference between Merchandising and Service companies and their respective accounting needs.<\/p>\r\nhttps:\/\/youtu.be\/2txVtrteY-A?list=PL_PmoCeUoNMIX3zP2yYSAq8gi6irBVh-1\r\n

An invoice<\/span><\/strong> is a document prepared by the seller of merchandise and sent to the buyer. The invoice contains the details of a sale, such as the number of units sold, unit price, total price billed, terms of sale, and manner of shipment.<\/p>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
BRYAN WHOLESALE CO.<\/strong><\/td>\r\n<\/td>\r\n\u00a0Invoice No.: 1258 <\/strong><\/td>\r\n<\/td>\r\n<\/tr>\r\n
476 Mason Street<\/strong><\/td>\r\n<\/td>\r\n<\/td>\r\n\u00a0Date: December 19<\/strong><\/td>\r\n<\/td>\r\n<\/tr>\r\n
Detroit,\u00a0MI 48823<\/strong><\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Customer's Order No.: 218<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Sold to:<\/td>\r\nBaier Company<\/td>\r\n<\/td>\r\nShipped To<\/td>\r\nBaier Company<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Address:<\/td>\r\n2255 Hannon St.<\/td>\r\n<\/td>\r\nAddress:<\/td>\r\n2255 Hannon Street<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nBig Rapids, MI 48106<\/td>\r\n<\/td>\r\n<\/td>\r\nBig Rapids,\u00a0MI 48106<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\n<\/td>\r\nDate Shipped:<\/td>\r\n\u00a0December 19<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Terms:<\/td>\r\nNet 30, FOB Destination<\/td>\r\nShipping Terms:<\/td>\r\nFOB Destination<\/td>\r\nShipped by: Nagel Trucking Co.<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Description<\/strong><\/td>\r\nItem Number<\/strong><\/td>\r\nQuantity<\/strong><\/td>\r\nPrice per Unit<\/td>\r\nTotal Amount<\/td>\r\n<\/td>\r\n<\/tr>\r\n
True-tone stereo radio<\/td>\r\nModel No. 5868-24393<\/td>\r\n200<\/td>\r\n$100<\/td>\r\n$20,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal<\/td>\r\n<\/td>\r\n$20,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n

Do you see a due date on the invoice?\u00a0 What about who pays for shipping?\u00a0 This is all detailed in the terms.\u00a0 You see two types of terms:<\/p>\r\n\r\n

    \r\n \t
  • Payment Terms:\u00a0 tells you when an invoice is due and if a discount is offered for early payment<\/li>\r\n \t
  • Shipping Terms:\u00a0 tells you who is responsible for paying for shipping and when the title of the goods passes to the buyer<\/li>\r\n<\/ul>\r\n

    Payment Terms<\/h2>\r\n

    In some industries, credit terms include a cash discount of 1% to 3% to encourage early payment of an amount due. A cash discount<\/strong><\/span> is a deduction from the invoice price that can be taken only if the invoice is paid within a specified time. Sellers call a cash discount a sales discount<\/strong> <\/span>and buyers call it a purchase discount<\/strong><\/span>.<\/strong>Companies often state payment terms as follows:<\/p>\r\n

    \u20221\/10, n\/30<\/strong>\u2014means a buyer who pays within 10 days following the invoice date may deduct a discount of 1% of the invoice price. If payment is not made within the discount period, the entire invoice price is due 30 days from the invoice date.<\/p>\r\n

    \u20223\/EOM, n\/60<\/strong>\u2014means a buyer who pays by the end of the month of purchase may deduct a\u00a03% discount from the invoice price. If payment is not made within the discount period, the entire invoice price is due 60 days from the invoice date.<\/p>\r\n

    \u20222\/10\/EOM, n\/60<\/strong>\u2014means a buyer who pays by the 10th of the month following the month of purchase may deduct a 2% discount from the invoice price. If payment is not made within the discount period, the entire invoice price is due 60 days from the invoice date.<\/p>\r\n

    \u2022Net 30 <\/strong>\u2014means the entire invoice price is due 30 days from the invoice date without a discount.<\/p>\r\n

    Sellers cannot record the sales discount before they receive the payment since they do not know when the buyer will pay the invoice. A cash discount taken by the buyer reduces the cash that the seller actually collects from the sale of the goods, so the seller must indicate this fact in its accounting records.<\/p>\r\n

    Companies base discounts on the invoice price of goods. If merchandise is later returned, the returned amount must be deducted from the invoice price before calculating\u00a0discounts. For example,\u00a0the invoice price of goods purchased was $ 30,000 and the company\u00a0returned $ 2,000 of the goods, the seller calculates the 2% discount on $ 28,000 ($30,000 original - $2,000 return).<\/span><\/p>\r\n\r\n

    Shipping Terms<\/h2>\r\n

    Shipping terms are used to show who is responsible for paying for shipping and when the title of the goods passes from seller to buyer. To understand how to account for transportation costs, you must know the meaning of the following terms:<\/span><\/p>\r\n\r\n

      \r\n \t
    • <\/b>FOB shipping point<\/b> means \"free on board at shipping point\". The buyer incurs all transportation costs after the merchandise has been loaded on a railroad car or truck at the point of shipment. Thus, the buyer is responsible for ultimately paying the freight charges.<\/span><\/li>\r\n \t
    • <\/b>FOB destination<\/b> means \"free on board at destination\". The seller ships the goods to their destination without charge to the buyer. Thus, the seller is ultimately responsible for paying the freight charges.<\/span><\/li>\r\n<\/ul>\r\nWe will look at how these items factor into journal entries for merchandising companies in the next sections.","rendered":"

      In Unit 1 we introduced the three main types of businesses, merchandising, service and manufacturing.\u00a0Merchandising companies purchase goods that are ready for sale and then sell them to customers. Merchandising companies include auto dealerships, clothing stores, and supermarkets, all of which earn revenue by selling goods to customers.<\/p>\n

      In a merchandising sales transaction, the seller sells a product and transfers the legal ownership (title) of the goods to the buyer.\u00a0 A business document called an invoice (a sales invoice for the seller and a purchase invoice for the buyer) becomes the basis for recording the sale.<\/p>\n

      The following video provides an overview of the difference between Merchandising and Service companies and their respective accounting needs.<\/p>\n