Fashion Merchandise Management


Like any other business, fashion merchandising involves purchasing already-made clothing materials and reshaping them through molding. These processes should be within the particular market needs to resell clothing products and achieve financial benefits. The enterprise customizes designed materials and sells them both locally and internationally, depending on the market demand. As it is an involving type of operation, marketing establishes the first course of action, which means that this type of business aims to define prices for its products (Barker et al., 2020). As such, the firm manager must learn and choose between cost accounting tools to inform operators and determine the kind of investments that may be attracted. As a result, this paper aims to identify specific incidental risk costs relevant to fashion merchandise management and relate some of the critical accounting tools to business operations.


In business operations, the key transactions include cost accounting, gross profit, sales return, and allowances. These tools are expected to enable the venture to forecast its inventory needs, review profit margins, and arrive at business decisions based on the current financial information. Cost accounting will be used in quoting the product standard prices. It will allow the establishment of secondary risk costs that have to be included in the costing. The incidental risks in fashion merchandise are expected to originate from logistic operations such as short shipment, late shipment, order cancelations, and sales anchored on discount prices (Barker et al., 2020). All these costs may be identified and have to be controlled during business operations. Cost accounting turns out to be an effective method for enhancing sustainability in future operations.

Gross profit represents the difference in enterprise sales and the cost of goods that the business sold. This transaction will be reported in the company’s income statement, and it will be expected that the company could sell the merchandise at a higher value than the costs. This type of profit will be significant in presenting a financial statement for investor attraction. In case the profit pace is realized to be small within the enterprise, there can be a problem with the profitability, even with the increment in sales being promoted. Considerations on accounts of the sales return and allowances account in business operations are calculated as contra-revenue accounts deductible from sales. The business obtains it by calculating the deals that will then be subtracted from sales returns and allowances (Brown et al. 2018). This procedure would provide business investors with a chance to track the sales return levels compared to the overall business sales. Important information will be retrieved on the relative return level, thereby measuring customer dissatisfaction or satisfaction.

Transactions Impacts on Business Income Statement and Balance Sheet

The cost accounting methods that will determine the business inventory costs are first-in, first-out (FIFO), and last in, first-out (LIFO). FIFO will be used because it will increase the profitability in the financial statement since it does not consider inflation. This method maintains the merchandise’s initial cost, thereby increasing the profit levels (Brown et al., 2018). Similarly, LIFO’s use will help the company dispose of the new products that may attract inflation and avoid incurring added costs and increase profitability in both the short and long run.

In gross profit calculations, all costs are incurred, influencing the balance sheet, which captures all the liabilities, assets, and equity. This process will make the recording of each expense incurred, which reduces the profit levels in the income statement (Brown et al., 2018). The impact of calculation on the business balance sheet may vary based on the original overhead transaction. Sales returns and allowances will be considered on the enterprise income statement and reduce business revenues (Brown et al., 2018). It is expected to lower the accounts receivable and cash on the balance sheet of the company.

Scenario Correction

In correcting the previous errors and misfortunes, the prior period errors will be considered retrospectively within the financial statements. In this case, corrections will only be focused on the preceding comparative figures in the income statement. A single journal entry will be used and combined with the original incorrect access, which helps resolve the error. To improve the issue, manual entry of data will be avoided; instead, an expense tracking app will be adapted to automatically update the expenses accounting software to reduce error risks (Lee et al., 2018). The business will adopt two primary techniques in recording financial transactions in its accounting books to implement proper accounting systems.

The two systems will include single entry and double-entry systems. It is also important to investigate the documents for the accounting errors are the balance sheet and the income statement. As a result of errors such as overstatements of inventory and overstated assets, low-key cost of goods sold, overstated equity, and inflated net income (Lee et al., 2018). The internal controls that are implemented to ensure proper accounting procedures include checks and balances that ensure no particular individual is given authority over the entire financial transactions.


Barker, R., Penman, S., Linsmeier, T. J., & Cooper, S. (2020). Moving the conceptual framework forward: Accounting for uncertainty. Contemporary Accounting Research, 37(1), 322-357. Web.

Brown, A. W., Kaiser, K. A., & Allison, D. B. (2018). Issues with data and analyses: Errors, underlying themes, and potential solutions. Proceedings of the National Academy of Sciences, 115(11), 2563-2570. Web.

Lee, S. M., Park, K. J., Song, H., & Wang, L. (2018). Material weaknesses in internal control concerning derivatives and hedge accounting. Journal of Corporate Accounting & Finance, 29(3), 24-31. Web.

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