What are merchandise?
Merchandise are the goods purchased for the purpose of resale in the ordinary course of business. This term is frequently used in trading organizations.
Merchandise are purchased either for cash or on account. The journal entries required to record the purchase of merchandise under both the cases are discussed below:
(1). When merchandise are purchased for cash
On January 01, 2016, John Traders purchases merchandise for $15,000 cash from Sam & Co. The journal entry for this purchase would be made as follows:
(2). When merchandise are purchased on account
If merchandise are purchased on account, the accounts involved in the transaction are purchases account and accounts payable account. Purchases account is debited and Accounts payable account is credited.
On January 01, 2016, John Traders purchases merchandise for $15,000 on account from Sam & Co. The journal entry for this purchase would be made as follows: