Merchandising Company Overview

A business that buys goods from manufacturers or wholesalers and sells them to customers. Examples include retail stores and wholesalers like Costco.

The cost of the products a merchandising business sells. It includes the purchase price of the goods plus any costs associated with getting them ready for sale, such as shipping and insurance.

The difference between revenue and the cost of goods sold. It represents the profit generated from the sale of merchandise.

The amount of money a merchandising business earns from the sale of its products.

A financial statement that shows the revenues, expenses, and net income of a business. It helps to understand the profitability of a business over a period of time.

Represents the total dollar value of goods on hand for sale.

A detailed document that provides information about the cost of goods sold. It shows how COGS was calculated.

The profit remaining after deducting all expenses from the gross profit. It represents the overall profitability of a merchandising business.

A tax that combines the Goods and Services Tax (GST) and the Provincial Sales Tax (PST).

The sales tax added to the customer's invoice and collected by the seller, later remitted to the government.

Businesses with annual sales over $30,000 must register for HST and be assigned a number.

Businesses can claim a refund (Input Tax Credit) for the HST paid on purchases for business purposes.

An account in the ledger that tracks the amount of HST that a business is entitled to recover from the government.

An account in the ledger that tracks the amount of HST that a business owes to the government.

A system that tracks inventory after each sale, keeping an ongoing record of available stock, commonly used in stores that need exact numbers.

A system where inventory is updated periodically (not after every sale), often used by businesses selling large quantities of low-priced items.

A physical count of all inventory on hand to determine the ending inventory balance.

A reduction in sales revenue due to customer returns, often reflecting dissatisfaction with the purchase.

The cost of goods sold (COGS) is the direct costs associated with producing goods that are sold by a company. It includes the cost materials, labor, and manufacturing overhead.

Purchases are the costs of goods bought for the purpose of resale. It includes the cost of purchasing raw materials, finished goods, and supplies.

Purchase returns and allowances represent the reduction in the cost of purchases due to returned or defective goods. It's a contra-expense account used to reduce the total purchase cost.

Purchase discounts represent discounts received on the purchase of goods when paid within a specified timeframe. It's a contra-expense account that reduces the overall cost of purchases.

Freight-in refers to the cost of transporting goods purchased for resale into the business. This cost is directly related to the acquisition of inventory and is considered part of the COGS.

The gross profit is the difference between the revenue generated from sales and the cost of goods sold (COGS). It represents the profit a company earns from selling its goods, before accounting for operating expenses.

Gross profit margin (GPM) is a profitability ratio calculated by dividing the gross profit by sales revenue. It expresses the percentage of each dollar of revenue that remains after deducting the cost of goods sold. This is a measure of a company's pricing strategy and efficiency in managing costs.

Markup is a pricing strategy that determines the selling price of a product based on its cost. It calculates the markup percentage by dividing the gross profit by the cost of goods sold.

Merchandise inventory (MI) represents the value of goods that a company holds for sale. In the periodic inventory system, MI is only updated at the end of the accounting period to reflect the balance of unsold goods.

Freight-out represents the costs of shipping goods to customers. It is a normal operating expense, not related to the cost of goods sold.

Terms of sale specify the payment terms agreed upon between a buyer and seller. These terms typically include payment due dates and any potential cash discounts offered.

Cash discounts are offered by sellers as an incentive for early payment. This encourages buyers to pay invoices promptly, benefiting both parties.

Discounts earned is a contra-expense account used by the buyer (purchaser) to record the cash discounts received when paying invoices early. It reduces the total cost of purchases.

Discounts allowed is a contra-revenue account used by the seller to record the discounts given when buyers pay early. It reduces the total revenue earned from sales.