ACCOUNTING FOR

MERACHANDISING
BUSINESS
Inventory Systems
Two types of inventory systems which keep
track of how much inventory has been sold
and at what price.
1. Periodic system- requires a physical count of
the inventory periodically, and at the point of
sale only records the sale price.
2. Perpetual system- at point of sale records
selling price and type of item sold. Example: a
bar code scanning system.
Differences in Recording
Purchases of Inventory- Periodic
Purchases 3,000
Accounts Payable 3,000
Sales During the Period- Periodic
Accounts Receivable 4,125
Sales 4,125
Accounts Receivable 4,125
Sales 4,125
Cost of Goods Sold 2,750
Inventory 2,750
Inventory 3,000
Accounts Payable 3,000
Purchases of Inventory- Perpetual
Sales During the Period- Perpetual
What Is Inventory Cost?
Inventory costs comprise of all expenditures
both direct and indirect, relating to acquisition,
preparation, and placement for sale.
Discounts can change the total inventory
costs.
1. Trade Discounts
Convert the catalog price to the actual price.
Record inventory at discounted price.
2. Cash Discounts
Granted for payment of invoices within a limited time
period.
Record inventory using the net method or gross method.
Cash Discounts- Net Method
Records inventory net of any
purchase (cash) discounts.
Example:
June 1:
Purchased merchandise for $10,000;
Terms of payment: 2/10, n/30;
Assuming a perpetual inventory method,
record the purchase of the inventory and
payment on June 8.
Cash Discounts- Net Method
June 1
Inventory 9,800
Accounts Payable (A/P) 9,800
June 8
A/P 9,800
Cash 9,800
June 28
A/P 9,800
Discounts Lost 200
Cash 10,000
June 30
Discounts Lost 200
A/P 200

Assume that
payment was not
made until June
28.
Assume no
payment till end
of the month (the
discount period
has lapsed) here
is the adjustment:
Cash Discounts
Purchase
Date
End of
Discount
Period
$9,800
Owed
$10,000
Owed
Final
Payment
Date
10 Days 20 Days
Supplier Loan Period
Cash Discounts- Gross Method
Records inventory gross cost; discounts
are recorded only if taken.

Example:
June 1
Purchased merchandise for $10,000;
Terms of payment: 2/10, n/30;
Assuming a perpetual inventory method,
record the purchase of the inventory and
payment on June 8.
Cash Discounts- Gross Method
June 1
Inventory 10,000
Accounts Payable (A/P) 10,000

June 8
A/P 10,000
Inventory 200
Cash 9,800

June 28
A/P 10,000
Cash 10,000
Assume that
payment was not
made until June
28.
Purchase Returns and Allowances
Adjustments are
also made when
goods are
damaged or not
lesser in quality
than ordered.
Sometimes the
customer
returns the
goods.
Accounts Payable 400

Purchase Returns &
Allowances
400
Periodic Inventory System
Accounts Payable 400

Inventory
400
Perpetual Inventory System
END!!!