Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792
Hey everyone, and welcome to our video today, Merchandising, Purchases, Sales, Discounts, Returns, and Allowance. So what are we going to discuss today? Well, we're going to do a quick review of merchandising and what the merchandising business is, getting a customer to pay us, the merchandiser, for goods.
And we're going to talk about some of the specific accounts involved. We're going to talk about discounts, as well as returns and allowance. And we're going to talk about how both discounts and returns and allowance have purchases and sales. So there's a purchase discount, sales discounts, purchases returns and allowance, and sales returns and allowance.
So let's start by doing a quick review of merchandising. Merchandising is buying products for resale to customers, rather than selling services. And what do merchandisers do? Well, they purchase inventory, which are the products that a company owns for resale to customers. So merchandisers purchase inventory and sell that inventory.
Some examples of merchandisers would be our department stores or our grocery stores. And then contrast that with our service providers. These would be tax preparers or our repairmen. So that's a quick rundown of merchandising.
So now let's talk about some of the specific accounts that I mentioned earlier. So which additional accounts do merchandisers use? Let's talk about discounts first, starting with our purchase discount.
For a purchase discount, the merchandiser pays in full within a specific period of time. So these are the inventory purchases that we're making as a merchandiser. So we'll receive a purchase discount if we pay in full within a specific period of time.
Our purchase is recorded at the pre-discount price. So we always record our purchase at the pre-discount price. And then we will receive a discount. And that discount for our purchase if paid within that specific period of time gets recorded to our purchase discount. So we record those separately from our purchases.
Let's take a look at an example of calculating purchase discount so we can illustrate what's going on here. So calculating purchase discount, our example, you'll see discounts annotated like this 2/14, n/30. So what does that mean?
Well, that first piece is we'll receive a 2% discount if paid within 14 days. So if we pay within 14 days, we'll get a 2% discount on our purchase. And if we don't pay within those 14 days, then the net amount due is in 30 days. So we have 30 days to pay the net amount. But if we pay within 14 days, we'll get a 2% discount.
So let's look at an example. We're going to purchase $1,000 of merchandise on 1/1 with terms 2/14, n/30. We're going to record that $1,000 purchase to our purchases. So we record it at the pre-discount price.
And then we're going to pay for that merchandise on 1/8. Are we within our window? We are. We're within that 14-day window, so that means we get a discount.
So we're going to record $20 to purchase discounts. And now that $20 is $1,000 multiplied by 2%. So that's our 2% discount.
So what's our net purchase price? We have our $1,000 purchase. Subtract out our $20 discount. So our net purchase price in this case is $980. So that's how we calculate a purchase discount.
Now let's look at the second type of discount, a sales discount. Now in this case, the customer pays in full within a specific period of time. So now we're reselling that inventory that we purchased to our customers. So a sales discount, the customer pays in full within a specific period of time.
We record that sale at the pre-discount price, just like we would our purchases. And any discount received for a payment is recorded to our sales discount account. So we track those sales discounts separately from our sales.
So now let's look at an example of calculating sales discount. So again, we're going to have that same annotation, 3/10, n/30. It looks very similar to our purchase discount. In this case, our consumer, our customer is going to receive a 3% discount if they pay it off within 10 days. And if they don't know, the net amount is due in 30 days.
So let's take this example. We sell $2,000 of merchandise on 1/1 with the terms 3/10, n/30. So we're going to record that $2,000 to sales. So it gets recorded at the pre-discount price.
And then we receive payment for the $2,000 of merchandise. And we receive it on 1/8, so they are within their discount window. So that means we need to record a discount. So we record $60 to our sales discounts account, which is $2,000 multiplied by 3%, so that 3% discount.
So what's the net sales price? We take that $2,000 sale, subtract the $60 discount. And that gives us a $1,940 net sales price. So that's our sales discount. That's our purchase discount.
Now let's move on to the next accounts, starting with return. So what's a return? That's a credit if a credit sale or cash refund if it's a cash sale that's given to a customer or business when merchandise purchased is flawed or inferior and the customer or business chooses not to keep it. So if you choose not to keep the merchandise that you purchase, you'll receive a refund, either a credit if it's a credit sale or a cash refund if it was a cash sale, so not keeping the merchandise.
And now allowance, what's an allowance? That's a deduction given to a customer or business when merchandise purchased is flawed or inferior and the customer or business chooses to keep the merchandise. So in an allowance, that's giving a deduction to a customer or business for flawed or inferior goods and they're keeping the merchandise, whereas a return is the purchaser is not keeping the merchandise so you give them either a credit or a cash refund.
So now let's talk about purchase. A purchase return, the merchandiser receives a credit or a refund if merchandise is returned. So that's us, as a merchandiser, making a purchase. And we'll receive a credit or refund if we return that merchandise to our supplier.
Now allowance, again, because it's a purchase, the merchandiser is receiving a deduction if the merchandise is kept. So as the merchandiser, if we keep the merchandise, we'll receive a deduction. And that's an allowance.
So now sales return, that's when our customer receives a credit or refund if they return the merchandise to us, the merchandiser. And then a sales allowance, the customer receives a deduction if the merchandise is kept. So those are our purchase return and allowance and the sales return and allowance.
So now let's summarize what we talked about today. In a nutshell, we talked about additional merchandising accounts. We talked about purchases and sales, purchase discounts, sales discounts, purchase return and allowance, and sales return and allowance.
I hope everybody enjoyed this video. And I hope to see you next time.