merchandising is any practice which contributes to the sale of products to a retail consumer.

At a retail
in-store level, merchandising refers to the variety of products available for sale and the display of those
products in such a way that it stimulates interest and entices customers to make a purchase.
Merchandising helps to understand the ordinary dating notation for the terms of payment of an invoice.
Periodic system an inventory system that records inventory level at specific points in time
Perpetual system- an inventory system records inventory into accounting system on a continuous basis
A periodic system is one where inventory is updated at specific points in time, usually only once an
accounting period. A perpetual system is one where inventory is updated after every single transaction.
Periodic

perpetual

-purchases account

-inventory account

-COGS reported at end of period

-COGS updated with every sale

Cost of goods sold-the account that reports direct cost that are attributed goods sold by a company
Perpetual inventory
Example:
(1). On 1st April 2013, Metro company purchases 15 washing machines at $500 per machine on account. The supplier allows a
discount of 5% if payment is made within 10 days of purchase. The Metro company uses net price method to record the purchase of
inventory.
The following journal entry would be made in the books of Metro company to record the purchase of merchandise:
Inventory

7,125*

Accounts payable

7,125*

*Net of discount: ($500 15) ($500 15 0.05)

(2). On the same day, Metro company pas $320 for freight and $100 for insurance.
The following journal entry would be made to record the payment of freight-in and insurance expenses:
Inventory

420

Cash

420

(3). On April 07, Metro company returns 5 washing machines to the supplier.
The return of washing machines to the supplier decreases the cost of inventory and accounts payable. The following entry would be
made to record this decrease:
Accounts payable

2,375

Inventory

2,375

(4). On April 9, Metro sends the payment via online banking system and takes the advantage of the discount offered by the supplier.
As the payment is made within 10 days, the Metro company is entitled to receive discount. The following entry would be made to
record the payment:
Accounts payable

4750*

Cash

4750*

*($7,125 $2,375)
(5). On April 15, Metro company sells 4 washing machines at 750 per machine. The Metro company does not allow any discount to
customers .
The sale of 4 washing machines transfers the cost of inventory from inventory account to cost of goods sold account. Two journal
entries would be made; one for the sale of 4 washing machines and one for the transfer of cost from inventory account to cost of
goods sold account:
Accounts receivables

3,000

Sales

3,000

Cost of goods sold

2,068

Inventory

2,068

To summarize the events of increase and decrease in the cost of inventory, Inventory T-account of Metro company is given below:

Periodic Inventory
Example:
The following information belongs to a hardware store.
Inventory 1st January 2012

200 units at $12 $2,400

Purchases during the years

2012

1800 units at
$12

$21,60
0

Sales during the years 2012

1200 units at
$24

$28,80
0

Inventory 31st December

2012

800 units at $12 $9,600

Required: Make journal entries to record the above transactions using periodic inventory system.
Solution:
Purchases

21,600

Accounts payable

21,600

Accounts receivable 28,800

Sales

28,800

Inventory ending

9,600

Cost of goods sold

(B.F.)

14,400*

Purchases

21,600

Inventory
beginning

2,400

* [(21,600 + 2,400) 9,600]

Periodic inventory system is usually used by companies that buy and sell a wide variety of inexpensive products.
A disadvantage of periodic inventory system is that overages and shortages of inventory are buried in cost of goods sold because no
accounting record is available against which to compare physical count of inventory.
Journal entries in a periodic inventory system:
(1). When goods are purchased from supplier:
Purchases

xxxx

Accounts payable

xxxx

(2) When expenses are incurred to obtain goods for sale freight-in, insurance etc:
Freight-in

xxxx

Insurance

xxxx

Cash/Bank

xxxx

(3). When goods are returned to supplier:

Accounts payable

xxxx

Purchases returns

xxxx

(4). When payment is made to supplier:

Accounts payable

xxxx

Cash/Bank

xxxx

(5). When goods are sold to customers:

Accounts receivable

xxxx

Sales

xxxx

(6). When goods are returned by customers:

Sales returns
Accounts receivable
(7). At the end of the period:
Inventory (ending)

xxxx

Cost of goods sold

(B.F)

xxxx

Purchases

xxxx

Inventory
(beginning)

xxxx

Journal entries in a perpetual inventory system:

(1). When goods are purchased:
Inventory

xxxx

Accounts payable

xxxx

(2). When expenses such as freight-in, insurance etc. are incurred:

Inventory

xxxx

Cash

xxxx

(3). When goods are returned to supplier:

Accounts payable

xxxx

Inventory

xxxx

(4). When goods are sold to customers:

Accounts receivable

xxxx

Sales
Cost of goods sold

xxxx
xxxx

Inventory
(5). When goods are returned by customers:

xxxx

Sales

xxxx

Accounts receivable
Inventory

xxxx
xxxx

Cost of goods sold

xxxx

(6). When a difference between the balance of inventory account and physical count of inventory is found:
Inventory over and
short
Inventory

xxxx
xxxx