From the course: Accounting Foundations: Managerial Accounting
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Cost flows in merchandising organizations
From the course: Accounting Foundations: Managerial Accounting
Cost flows in merchandising organizations
- The business process for merchants is probably familiar to you. Most retail merchants or retailers place orders with and receive shipments from wholesale merchants or wholesalers. Many retail merchants have a receiving dock and a breakdown area used to prepare goods for display on their sales floor as shown here. Some retailers also keep a stockroom for holding excess inventory. However, the cost of holding inventory in today's competitive environment is causing retailers to demand that wholesalers provide smaller and more frequent shipments. As a result, many retailers are able to avoid having a stock room. Inventory in these companies can then be moved directly from the breakdown area onto the sales floor. As you can see, in contrast to accounting for manufacturing and service businesses, the flow of costs through the merchandising accounting system is relatively simple. There are no overhead accounts and no raw materials and work in processing inventory. Merchandise inventory by…
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