Lecture Week 2
Lecture Week 2
Lecture Week 2
1
Lecture Week 2
Accounting for Merchandising Transactions
2
Learning Objectives
3
Recording Purchases under Perpetual Inventory System
4
5
Purchases without Cash Discounts
Example
Example Quantity sold 1,000
Z-Mart
Z-Mart offers
offers aa 30%
30% trade
trade Price per unit $ 5.25
Total 5,250
discount
discount for
for orders
orders of of 1,000
1,000 Less 30% discount (1,575)
units
units or
or more
more on on its
its popular
popular Invoice price $ 3,675
product
product Racer.
Racer. Each
Each
Racer
Racer has
has aa list
list price
price ofof $5.25.
$5.25.
Purchase Discounts
2/10, n/30
Number of
days Otherwise,
Discount discount Is net (or all) Credit
per cent available is due in 30 period
days
Purchases with Cash Discounts
Purchase
Purchase Return
Return
Merchandise
Merchandise returned
returned by
by the
the purchaser
purchaser to
to
the
the supplier.
supplier.
Purchase
Purchase Allowance
Allowance
AA reduction
reduction in
in the
the cost
cost of
of defective
defective or
or
unacceptable
unacceptable merchandise
merchandise received
received by
by aa
purchaser
purchaser from
from aa supplier.
supplier.
Purchase Returns and Allowances
Goods in
Ownership Transportation Costs
Shipping Terms Transit
Transfers at Paid by
Owned by
FOB shipping Shipping point Buyer Buyer Merchandise Inventory #
point
Cash #
FOB destination Destination Seller Seller Delivery Expense #
Cash #
Transportation Costs
Merchandise
Inventory
Purchase June 1 1,000 June 3 100 Purchase return
Freight-in 6 75 11 18 Purchase discount
Balance 957
Calculating Net Cost of Inventory
The accounting system described in this part does not provide separate records
(accounts) for total purchases, total purchase discounts, total purchase returns and
allowances, and total transportation-in, They are all added to the inventory account
under perpetual system. Yet, nearly all companies collect this information in
supplementary records because managers need this information to evaluate and control
each of these cost elements.
DO IT! Purchase Transactions
On September 5, Smith Company buys merchandise on account
from Williams Company. The purchase price of the goods paid by
Smith is $15,000, and the cost to Williams Company was $8,000.
On September 8, Smith returns defective goods with a selling
price of $2,000.
Record the transactions on the books of Smith Company.
Sept. 5 Merchandise Inventory 15,000
Accounts Payable 15,000
8 Accounts Payable 2,000
23
References
• Wild, J., Shaw, K., Chiappetta, B. and Samaha, K., 2017. Fundamental
Accounting Principles. 2nd ed. McGraw-Hill Education.
• Weygandt, J., Kimmel, P. and Kieso, D., 2019. Accounting Principles
IFRS Version. Global Edition. Wiley.
24