Recording Purchases of Merchandise Freight Costs Terms of

Recording Purchases of Merchandise Freight Costs – Terms of Sale Illustration 5 -6 Seller places goods Free On Board (FOB) the carrier, and buyer pays freight costs. Seller places goods Free On Board (FOB) to the buyer’s place of business, and seller pays freight costs. Chapter 5 -1 Freight costs incurred by the seller are an operating expense.

Recording Purchases of Merchandise #12 in Outline Purchase Discounts Terms- If you see the word “TERMS” it = ON ACCOUNT 2/10, n/30 2% discount if paid within 10 days, otherwise net amount due within 30 days. Chapter 5 -2 1/10 EOM 1% discount if paid within first 10 days of next month. n/10 EOM Net amount due within the first 10 days of the next month. SO 2 Explain the recording of purchases under a perpetual inventory system.

Recording Purchases of Merchandise Purchase Discounts Example: Credit terms of 2/10, n/30, is read “two-ten, net thirty. ” 2% cash discount if payment is made within 10 days. Chapter 5 -3 SO 2 Explain the recording of purchases under a perpetual inventory system.

PURCHASE DISCOUNTS EX 1: You purchase $800 in equipment for your business. The seller give you “terms” of a 2% discount if you pay them within 10 days or full payment with no discount in 30 days. (TERMS 2/10, n/30). How much do you owe if you pay in 10 days? 30 days? l If you pay with in 10 days, the discount would be l If you pay in 30 days, you owe l EX 2: You purchase supplies for $10, 000 with the credit Terms 1/10, n/30. How much do you owe if you pay in 10 days? 30 days? If you pay with in 10 days, the discount would be If you pay in 30 days, you owe l l Chapter 5 -4

Recording Sales of Merchandise Two Journal Entries to Record a Sale- #16 in Outline #1 Cash or Accounts receivable Sales XXX #2 Cost of goods sold XXX Merchandise inventory Chapter 5 -5 XXX Selling Price XXX Cost SO 3 Explain the recording of sales revenues under a perpetual inventory system.

EXAMPLE: l ABC sells merchandise on account to DEF Corp. The selling price of the goods is $500, and the cost of the goods is $200. l Journalize the transaction for the SALE of the merchandise. Chapter 5 -6

Recording Sales of Merchandise On December 3, YOU sold $500, 000 of merchandise to ABC Co. , terms 2/10, n/30, FOB shipping point. Cost of merchandise sold was $350, 000. Journalize the Sale. Dec. 3 Accounts receivable 500, 000 Sales 500, 000 Cost of goods sold 350, 000 Merchandise inventory 350, 000 Chapter 5 -7

Recording Sales of Merchandise under Perpetual System On December 8, YOU granted an allowance of $27, 000 for merchandise purchased by ABC on December 3. Dec. 8 Chapter 5 -8 Sales returns and allowances Accounts receivable 27, 000 SO 3 Explain the recording of sales revenues under a perpetual inventory system.

Recording Sales of Merchandise under Perpetual System Variation On Dec. 8, ABC Co. returned merchandise to YOU for credit of $27, 000. The original cost of the merchandise to Wheeler was $19, 800. Dec. 8 Sales returns and allowances Accounts receivable Merchandise inventory Cost of goods sold Chapter 5 -9 27, 000 19, 800 SO 3 Explain the recording of sales revenues under a perpetual inventory system.

Recording Sales of Merchandise under Perpetual System On December 13, YOU received the balance due from ABC Co. NOTE: The Original purchase on 12/3 was for $500 k (terms 2/10) they returned $27 k. Dec. 13 Cash 463, 540 * Sales discounts 9, 460 Accounts receivable ** * ($473, 000 – $9, 460) ** [($500, 000 – $27, 000) X 2%] 473, 000 *** ($500, 000 – $27, 000) Chapter 5 -10 SO 3 Explain the recording of sales revenues under a perpetual inventory system.

Recording Purchases of Merchandise April 5 Merchandise inventory XXXX Accounts payable or CASH XXXX Chapter 5 -11 SO 2 Explain the recording of purchases under a perpetual inventory system.

l l Chapter 5 -12 Hollins Company buys (PURCHASES) merchandise on account from Gordon Company (SELLER). The selling price of the goods is $780, and the cost of the goods is $520. Both companies use perpetual inventory systems. Journalize the transaction on the books of the PURCHASE & SALE of the merchandise. HINT: USE #16 in Outline OR MERCHANDISE INVENTORY EXAMPLES

Recording Purchases of Merchandise under Perpetual System- EXAMPLE On 4/5, You Purchased merchandise on account from Bryant Company for $25, 000 terms 2/10, net/30, FOB shipping point. April 5 Chapter 5 -13 Merchandise inventory Accounts payable 25, 000 SO 2 Explain the recording of purchases under a perpetual inventory system.

Recording Purchases of Merchandise On April 6, you paid freight costs of $900 on merchandise purchased from Bryant. April 6 Chapter 5 -14 Merchandise inventory Cash 900 SO 2 Explain the recording of purchases under a perpetual inventory system.

Recording Purchases of Merchandise Purchase Returns and Allowances Purchaser may be dissatisfied because goods are damaged or defective, of inferior quality, or do not meet specifications. Purchase Return Purchase Allowance Return goods for credit if the sale was made on credit, or for a cash refund if the purchase was for cash. May choose to keep the merchandise if the seller will grant an allowance (deduction) from the purchase price. Chapter 5 -15 SO 2 Explain the recording of purchases under a perpetual inventory system.

Recording Purchases of Merchandise On April 8, you returned damaged merchandise to Bryant Company and was granted a $4, 000 credit for returned merchandise. April 8 Chapter 5 -16 Accounts payable 4, 000 Merchandise inventory 4, 000 SO 2 Explain the recording of purchases under a perpetual inventory system.

Recording Purchases of Merchandise On April 15, you paid the $25, 000 amount due to Bryant Company in full. Remember the return of $4, 000 of merchandise. Purchase was made on 4/5, terms 2/10, net/30 (Discount = $21, 000 x 2% = $420) April 15 Accounts payable 21, 000 Cash 20, 580 Merchandise Inventory Chapter 5 -17 420 SO 2 Explain the recording of purchases under a perpetual inventory system.