Chapter 5 Accounting: Purchasing Inventory
Balance Sheet
Account: Inventory, asset
Merchandisers
Businesses that sell a product to customers
FOB Destination Point
Buyer takes ownership of inventory when goods arrive Seller normally pays the freight
FOB Shipping Point
Buyer takes ownership of the inventory when good's leave the seller's place of business
Accounting for Purchase inventory
Debit: Purchase Inventory Credit: Accounts Payable
Purchase Discounts
Discount for early payments 2% discount if paid within 10 days, if not, full amount due within 30 days
Purchasing Inventory
Inventory account is increased each time merchandise is purchased Vendor provides an invoice showing the quantity and cost of the items Inventory cost is also impacted by shipping costs, return of purchased items, and discounts for early payment
Inventory
Merchandise held for sale Asset account
Operating Cycle
Purchase inventory, sell inventory, collect cash from customers
Purchase returns and allowances
Purchase return: Merchandise returned by the purchaser to the supplier Purchase allowance: Seller reduces amount owed; incentive for purchaser to keep goods
Perpetual Inventory System
Record of quantity of goods is constantly updated; better control of inventory b/c of bar codes and computer scanning
Income Statement
Sales Revenue and Cost of Goods sold, expense
Periodic Inventory System
Seldom used; would be for a small business who physically and manually count their inventory of what they have sold or purchased