Target provides good customer service, and high-quality brand name products. Target prices are extremely competitive because they sell well-known merchandises with a nice discount. A merchandising business makes its income by the purchasing and selling of goods.
Every merchandising company uses a similar accounting formula.
The cash flow management is important for a merchandising business, and it requires organizing a company’s receipts and payments of money.
If a company is not capable of paying its bills when they are needed, then that is when the company will go out of business.
This is very true for merchandising business, and the goods that are sold are known as merchandise inventory.
The normal transactions that merchandising business go through is known as the operating cycle.
First, the business purchases the merchandise inventory, and pay for it on either cash or credit and then, it sells the merchandise inventory for either cash or credit.
The purchases are usually made on credit which means that the merchandising business must wait some time before they receive the money for it.
However, this is not really an issue.
The proper management of cash flow is extremely crucial for a merchandising business because they must keep financing the merchandise inventory until they are sold which can be risky.
The financing period is the time from the purchase of goods for merchandise inventory, until the customers come in and purchase the products.
This is commonly referred to as the cash gap.
Target generally has a low financial period because they usually receive payments by cash, as opposed to credit which takes longer.
The sale of goods on Visa and MasterCard are considered cash sales because they take the money right from the purchaser’s account.
Generally, the smaller retail stores have more sales on cash than credit, while the bigger retail stores come mostly from credit.
The average merchandising store will have a combination of both.
Also, cash flows are not the only concern of a merchandising business because they also consider profitability.
The reason why merchandising businesses sell goods at such a large price is so that they can have enough money left to make an income.
Profitability management is a very hard task, and it includes getting a decent margin to maintain appropriate levels of operating expenses.
Getting a decent margin will depend on the appropriate pricing of a product and purchasing merchandise at a fair price.
At important times throughout the year, the management should compare its estimated budget to its actual one.
Another important aspect of the management is to choose the inventory system properly.
Management must choose one or a couple of systems that will get the job done in a timely manner.
There are two basic systems used in accounting for this and they are the perpetual and the periodic inventory system.
When using the perpetual inventory system, numerous of records are kept for the quantity available and the cost of the individual items as they are sold.
The cost of an individual item in this system is recorded in the Merchandise Inventory account, and when the item is sold, it is transferred to the Cost of Goods sold account.
However, for the periodic inventory system the item that is not sold is checked often, but usually towards the end of an accounting period.
No records are kept for the inventory throughout the accounting period.
The inventory is only accurate for the balance sheet date.
The reason why some retail stores use this method is because it cuts down on the clerical work.
This method is acceptable for small business, but it will not work too well for large businesses.
