Question

Describe and illustrate the accounting for merchandise transactions

Answer 1

Accounting for merchandise transactions-

• When we do accounting of Merchantile goods, then that accounting is known as Accounting for merchandise transactions.
• Merchantile goods are those goods of business in which we enter into sale & purchase transactions to earn profit.
• The purchase of inventory items for sale to consumers is recorded in the merchandise inventory account.
• Merchandise inventory is the merchandise on hand and is a current asset.

• Illustration- Mr.C's, a local retailer, buys and resells Chairs. When the business purchases an order of Chairs on account from their supplier for $1,850, & sell it for $ 3000.

Journal entry of above-

For Purchase transaction-

Merchandise Inventory A/c Debit -$1,850 & Accounts Payable A/c Credit-$1,850

For Sale transaction-

Accounts Receivable A/c Debit-$3,000 & Sales A/c Credit-$3,000