Question

In the previous units, we learned about basic accounting principles that generally apply to all types of firms. In this unit, we turn our attention to particular accounting concerns of merchant firms.

Because merchants are in many places among the most common type of business, and because there are special issues in accounting for merchandising operations, this subject merits special consideration.

No doubt all of you have merchants in the area where you live, you may often shop there, perhaps some of you may have even worked in a merchant shop. Think of a popular merchant near you. What type of merchandise do they stock? How do you think this merchant determines his or her cost of goods sold? Describe the method and "real" accounts.

250 words or more (must be original no copy paste)

Answer 1

One of the popular merchant here is Big Bazaar. It is having several outlets of different sizes spread across the city and countrywide also. It stocks several ranges of products from kitchen & home appliances, garments, dry foods, beverages, fruits, consumables etc.

Inventory is classifies by its use. Retailers often have only one category→Merchandise-which includes retail goods that were purchased ready for sale.

Cost of goods sold is basically comprises of the wholesale prices of the goods and its stocking charges like, the cost of storing or warehousing, delivery, packaging etc. For retailers like this, they don’t have much of production activity therefore, cost of production here is little to none. They possess a huge volume of inventory because the inventory are purchased from the wholesalers at the wholesale prices and they sell it to the customers by giving a required mark up on each product.

Costs mostly are of administrative nature. They used to maintain a perpetual inventory system which keeps continuous track of the changes in the inventory accounts. All transactions are recorded as they occur. Retail systems are more accurate as they update records or record inventory changes at the point of sale, updating both the inventory and cost of goods sold. Purchases, Returns, Allowances, Discounts, Freight-in etc. are also updated. The basic system of cost of goods sold is to determine in this way: (Beginning Inventory + Purchase) – Ending Inventory

Let’s taken an example of this. Beginning inventory, January 1 $350000

Ending inventory, December 31 $400000

Purchase $670000

Cost of Goods Sold:

Opening Inventory $350000

Add: Purchase $670000

Cost of Goods available for sale $1020000

Less: Closing inventory $400000

Cost of Goods Sold $620000

Real accounts is an account that accounts for all assets and liabilities. All assets accounts are debit and all liability accounts are credit. Examples are→ Plant & Machinery, Building, Land, Salaries payable, Wages payable, Bonds payable etc.