accounting chapter 4
On May 14, X-mart purchased $500 worth of merchandise with terms of 3/15, n/40. If payment is made on May 28, calculate the purchase discount that may be taken by X-mart.
$500 x 0.3= 15$
Explain what the credit terms of 2/10, n/30 mean
-The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date. -The full payment is due within a 30 day credit limit
Merchandise inventory
-asset account -products that a company owns and intends to sell. -an account appearing on the balance sheet of a merchandiser
period-end adjusting entries are commonly made for
-expected sales discounts -expected returns and allowances (revenue side) -expected returns and allowances (cost side)
Components of a merchandiser's multi-step income statement are shown below. In which order would they appear on the statement?
1)Net sales 2)Costs of goods sold 3)Gross profit 4)Expenses 5)Net income
wholesaler
A type of business that buys goods in large amounts and resells them to other businesses in smaller lots.
purchase allowance
An amount granted to the purchaser as an incentive to keep goods that are not "as ordered"
Jo's market sold 1,000$ of goods on credit with terms of 2/10,n/30. The original cost of the goods was $400. Required journal entry to record the sale and cost of the sale would be:
D: Accounts rec 1,000 D:Costs of goods sold 400 C:Sales 1,000 C:Merchandise inventory 400
On Dec 7th, Toys R fun purchased 1,000$ of merchandise with terms 2/10, n/30. If payment is made on December 16th, demonstrate the required journal entry for Toys R fun to record the payment under the perpetual inventory system
Debit Accounts Payable for for 1,000$ credit cash 980$ credit merchandise inventory for 20$
If seller is responsible for the shipping costs of merchandise sold, the shipping terms will be
FOB destination
FOB shipping point
Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.
FOB destination
Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.
shrinkage
Inventory losses that occur as a result of theft or deterioration.
JUNE 1) Sold 50 units of merchandise to a customer for 150$ per unit under credit terms of 2/10, n/30. FOB shipping point and the invoice is dated June 1. The 50 units of merchandise had cost 100$ per unit. JUNE 7) The customer returns 2 units b/c those units do not fit its needs. The seller restores those units to its inventory (not defective) and sends the buyer a 300$ credit memorandum. June 11th) The seller receives the balance due from the June 1 sale to the customer less return/allowances June 14th) The customer discovers that 10 units have minor damage but keeps them b/c the seller sends a 50$ cash payment allowance to compensate.
June 1) D: AR 7500$ C: Sales 7500$ D:Cost of goods sold 5,000$ C: Merch inventory 5,000$ June 7) D: Sales returns and allowances 300$ C: Accounts receivable 300$ D: Merch inventory 200$ C: Costs of goods sold 200$ June 11th) D: Cash 7,056% D: Sales discounts (7200x0.2)= 144 C:AR (7500-300) 7,200$ June 14th) D: Sales returns and allowances 50 C: Cash 50
For example, credit terms of "2/10, n/60" mean that full payment is due within a 60-day credit period, but the buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.
READ ME
Each side of merchandise has 2 parts. Those 2 parts are:
Revenue side and cost side
Gross profit is calculated by taking the net _________ of a product and ______________ the costs of goods sold.
Sales, subtracting
Free on Board (FOB)
The price for goods includes delivery at the seller's expense to a specified point and no further.
discount period
Time period in which a cash discount is available and the buyer can make a reduced payment.
Sales returns and allowances
Transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods. (contra revenue account)
Purchase return
a return of goods from the buyer to the seller for cash or credit
inventory returns estimated is a
asset
Retailer
buys products from manufacturers or wholesalers and sells them to consumers
sales discount is a
contra revenue account
Jello's market purchased 1,000$ worth of goods on account with terms 2/10,n/30. They returned 200$ worth of the goods due to the defect the next day. If Jello pays for the purchase within the discount period and uses the perpetual inventory system, the required journal entry to record the payment would:
debit accounts payable $800 credit merchandise inventory 16$ credit cash 784$
Merchandiser
earns net income by buying and selling merchandise
To compute net income for a merchandiser, you will start with net sales, subtract costs of goods sold and subtract other
expenses
merchandise
goods that a merchandising business purchases to sell
Sales refund payable is a
liability
Sales discounts is a contra-__________ account and is increased with a _____________
revenue, debit
costs of goods sold
the amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies. Expense that appears on income statement
Gross Profit
the excess of net sales over the cost of goods sold
perpetual inventory system
updates accounting records for each purchase and sale of inventory
periodic inventory system
updates the accounting records for purchases and sales of inventory only at the end of a period
