William Porter
3/12/18
Economics
Merchandising Companies
Merchandising companies buy and sell merchandise rather than perform services as
their primary source of revenue. Merchandising companies that purchase and sell items directly
to consumers are called retailers. Merchandising companies that sell to retailers are the
wholesalers. Cost of goods sold is the total cost of merchandise sold during the period.
is the total cost of merchandise sold during the period. This expense is directly related to the
revenue recognized from the sale of goods. Companies use either one of two systems to account
for inventory which are a perpetual inventory system or a periodic inventory system.
In the perpetual inventory system, companies keep detailed records of the cost of each
inventory purchase and sale. In a periodic inventory system, companies do not keep detailed
inventory records of the goods on hand throughout the period. Under a perpetual inventory
system, a company discovers the cost of goods sold each time a sale occurs. Whereas in a
periodic inventory system, companies do not keep detailed inventory records of the goods on
hand throughout the period.
Companies buy inventory by using cash or credit on account. They usually record
purchases when they receive the goods from the seller. A purchase invoice will support each
credit purchase. The invoice show the total purchase price and othengnngggjjggggr needed
information. FOB shipping point is when the seller places the goods free on board the carrier,
while the buyer pays the freight costs. FOB destination means that the seller places the goods
free on board to the buyer’s place of business, while the seller would pay for the freight. Freight
costs that is incurred by the seller on outgoing merchandise are on an operating expense to the
seller. A purchase return would be when the purchaser returns the goods to the seller for credit if