Chapter 5: Accounting for Merchandise Sales

Point 1:

Point 1: Published income statements rarely disclose sales discounts, returns and allowances.

Sales of Merchandise: Each sales transaction for a seller of merchandise involves two parts.

1. Revenue received in the form of an asset from the customer. 2. Cost recognized for the merchandise sold to the customer.

Gross profit Formula

GP = Net sales - Cost of Goods sold

Sales Returns

It refers to merchandise that customers return to the seller after sale. Some companies allow full refund.

Sales Allowances

It refers to reductions in the selling price of merchandise sold to customers. Customers buy items damaged or defectives at a reduced selling price.

Net Sales Formula

NS = Sales - Sales discounts - Sales Returns and Allowances

Point 2

Point 2: Some sellers charge buyers a re-stocking fee for returns.

Point

Point: Ratio-frequency identification (RFID) tags attach to objects for tracking purposes. Such tags help find items in a store, monitor shipments, and help check on production progress.

Sales Discounts

SD is a contra revenue account, meaning the Sales Discounts account is deducted from the sales account when computing a company's net sales. Management monitors Sales Discount to assess the effectiveness and cost of its discount policy.

Point 3

point 3: The sender (maker) of a credit memorandum will credit the account of the receiver. The receiver of a credit memorandum will debit the sender's account.