Question

Think about a merchandising company and the types of transactions we will be posting for this type of company, what are the most important elements of a merchandising company from an analytical perspective? If you were to analyze the financial statements, where would you focus your attention and why?

Answer 1

Merchandising transactions are separated into two categories: purchases and sales. In general, a purchase transaction occurs between a manufacturer and the merchandiser, also called a retailer. A sales transactionoccurs between a customer and the merchandiser or retailer. We will now discuss the characteristics that create purchase and sales transactions for a retailer. A merchandiser will need to purchase merchandise for its business to continue operations and can use several purchase situations to accomplish this.

A retailer typically conducts business with a manufacturer or with a supplier who buys from a manufacturer. The retailer will purchase their finished goods for resale. When the purchase occurs, the retailer may pay for the merchandise with cash or on credit. If the retailer pays for the merchandise with cash, they would be trading one current asset, Cash, for another current asset, Merchandise Inventory or just Inventory, depending upon the company’s account titles. In this example, they would record a debit entry to Merchandise Inventory and a credit entry to Cash. If they decide to pay on credit, a liability would be created, and Accounts Payable would be credited rather than Cash. For example, a clothing store may pay a jeans manufacturer cash for 50 pairs of jeans, costing $25 each. The following entry would occur.

If this same company decides to purchase merchandise on credit, Accounts Payable is credited instead of Cash.

Analytical Prospective and Main Focus

We will be focusing on the the company called Shweta international, a department store selling men's, women's, and children's clothing and other related items. We performed financial statement analysis for our subject company, including two types of income statement analysis: vertical analysis and calculating gross margin ratio. We also performed balance sheet analysis for Shweta international specifically Great. So now that we've performed our financial statement analysis for our subject merchandising company, Shweta international , let's summarize what we talked about today. In a nutshell, we discussed our case study company, Shweta international and then we looked at performing financial statement analysis for the company. We looked at performing income statement analysis, and we looked at balance sheet analysis, specifically calculating inventory turnover as well as days inventory on hand/days in inventory.