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Unit 3 · 13 lessons

The Accounting Cycle: Merchandising Business

How a business that buys and resells goods tracks purchases, sales, sales tax, subsidiary ledgers, cash control, and the merchandising financial statements.

  • 92 practice questions
  • 82 flashcards
  • 2 interactive lessons
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Lessons

  1. 1Service vs. Merchandising vs. ManufacturingBusinesses fall into three broad types based on what they sell. A merchandiser buys finished goods and resells them, which creates a whole new set of accounts a service business never needs.8 questions
  2. 2The Purchases AccountBuying merchandise for resale is tracked in a dedicated Purchases account, with contra accounts for returns and discounts, plus Transportation-in for freight the buyer pays.7 questions
  3. 3The Sales AccountSelling merchandise is the mirror image of purchasing it: a Sales account, contra accounts for returns and discounts on the customer side, and Delivery Expense for freight the seller pays out.7 questions
  4. 4Periodic vs. Perpetual InventoryA business can track how much merchandise it has either by counting it (periodic) or by updating a running balance with every transaction (perpetual) — most modern stores use both together.6 questions
  5. 5Cost of Goods Sold & Gross ProfitCost of Goods Sold is the true cost of everything a business actually sold in a period — calculated on a schedule from opening inventory, net purchases, and closing inventory.7 questions
  6. 6GST, HST, and PSTA merchandiser collects sales tax on what it sells and pays it on what it buys — HST Payable and HST Refundable track both sides, and only the net difference is ever remitted to the CRA.Interactive8 questions
  7. 7Subsidiary Ledgers & Control AccountsWhen a business has hundreds of customers or suppliers, one general-ledger Accounts Receivable account cannot show each balance — a subsidiary ledger tracks every individual account, kept in balance by a control account.7 questions
  8. 8The Special Journal SystemA high-volume business splits its general journal into specialized journals — one each for purchases, sales, cash receipts, and cash payments — so repetitive entries can be recorded and posted far more efficiently.Interactive8 questions
  9. 9Cash Control & Petty CashBecause cash is the easiest asset to steal or lose track of, businesses build in internal controls — separating duties, tracking cash short and over, and running a tightly documented petty cash fund.6 questions
  10. 10Bank ReconciliationA business's Cash account and the bank's own records almost never agree on any given day — a reconciliation statement explains every difference and brings both records into agreement.7 questions
  11. 11Bad Debts & the Allowance MethodNot every customer who buys on credit ends up paying — bad debts must be estimated and expensed in the SAME period as the related sale, using either a percentage of sales or a percentage of receivables.7 questions
  12. 12Accruals & DeferralsSome revenues and expenses belong to the current period even though no cash has changed hands yet, and some cash already received or paid actually belongs to a future period — adjusting entries fix both.7 questions
  13. 13Merchandising Financial StatementsThe classified income statement for a merchandiser has three sections — revenue, cost of goods sold, and operating expenses — and the balance sheet gets a new formal name: the Statement of Financial Position.7 questions