Adjustment for Merchandise Firms

Merchandise is product that a company buys from vendors in order to sell to customers for a profit. Of course, the merchandising enterprise stills incurs operating expenses (insurance, rent, wages, etc.) along with an additional expense known as Cost of Goods Sold. The structure of this cost is of major importance to accountants because is it is used in managerial and cost accounting to determine cost of manufacturing (raw materials and work in process). This will not be addressed until Managerial Accounting (ACCT 2302). The structure of cost of goods sold is:

Cost of Goods Sold:

Add: Beginning Merchandise Inventory
Add: Net Purchases
Sub Total: Cost of Goods Available for Sale
Less: Ending Merchandise Inventory
Total: Cost of Goods Sold

The adjusting entries required for a merchandising firm include those required of a service enterprise as mentioned initially. However, the beginning merchandise will have to be replaced by the ending merchandise inventory. These adjustments are as follows:

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