BASIC ACCOUNTING Merchandising Operations of amerchandising entity. different source documents bein 5. unts and trade discounts, ‘ 6. ment of transportation costs considering, tion, FOB Shipping Point, Freight Prepaid 7 systems of merchandising entities. 8 transactions for merchandise sales under @ transactions for merchandise purchases 10. isactions. crs trast the entries needed for the periodic and perp € een of Teen! Show business is easy for Spears who is just 18 pt was written in 2000). At the age of 9, she was winning talent artist, Her 199 :| Bosic Accounting g. Spears sings light, BOUNCY Music an F< popular again, and when there ae . een since the babyboomers yay. Credit some of her success to good timing teenagers at a time when light, bouncy musi teenagers in the U.S.—31 million—than there have b ance. teens. Credit the rest to drive and perseve' we big first albums. Only afew ay, ss to parlay her fame into tiga, eign. But now comes the hard part. Many performers ha two challenge: albums—people under 1y ill, they (oF their paren, net at least USS1S milo, promoter, guaranteed hey rtisers love anyone kis Jive Records in 1997, ang thing to go by, got paid accordingly: a USy and a royalty rate, after fees than USS1 per record sold. Stars like Mado line Dion command royaties 2 or more. An album is for release and gers are negotiating with jve of Forbes Magazine, Morch 20, es of Britney Spears would certainly capitalize and appeal to ert Jrandising—like selling records. Celebrit pped to push for ‘and they are usually successful in doing so. 7 et endorsemert ‘and right. The previous chapters illustrated the accounting cycle of ens ined revenues by providing services. A service busit knowledge & ise while a merchandising business sells a particular or a group of products products will be sold either wholesale or retail in the same form that they we ‘The manufacturing business produces the goods that merchandisers st ‘entities convert raw materials into finished products through the utilization & labor and machines. In this chapter, the merchandising ‘business will be companies perform services for a fee. In ascertaining profit, a basic incom all that is needed. In Figure 8-1, profit is measured as the differs? revenues from services and expenses. In contrast, merchandising compa" mn profit by buying and selling goods. These entities use the same basic account ds as service companies, but the process of buying and selling merchard* s some additional accounts and concepts. This process results in 2 more comm”income statement. To provide a bett if merchandising business i nomen — ted with additional items: Service Company Merchandisi ce ‘chandising Company Income Statement iness, net sales arise from the sale of goods whi resents the cost of inventory the entity has so net sales and cost of sales is called grass prof ‘added and operating expenses (like dist id other operating expenses) are deducted to arrive at op Investment revenues, other gains and losses, é costs (e.g. inter snse) are considered to arrive at profit before tax t tax expense is d 9 have profit from continuing operations. Finally, discontinued o ot of tax) is taken to account to get profit for the p ‘Theodore Calaguas Traders Income Statement For the Year Ended Dec. 31, 2014 2,393,250 uy 1,313,600 P 1,079,650 586,040 i P 493,610 38,400 P_455,210 —_—_— arts of an income Statement fora Merchanlsng EU8-4 | Basic Accounting OPERATING CYCLE OF A MERCHANDISING BUSINESS The merchandising entity purchases inventory, sels the inventory and uses the cag, purchase more inventory—and the cycle continues. For cash sales, the cycle is, cash to inventory and back to cash. For sales on account, the cycle Is from cas inventory to accounts receivable and back to cash. In any industry, the manager sit to shorten the cycle. The faster the sale of inventory and the collection of cash, higher the profits. The following illustrates the operating cycle of a merchandiser to help identify ents contain jore common samples of invoice is prepared by the seller of goods and sent to the buyer. This docunest 1s the name and address of the buyer, the date of sale and information—quantity, icription and price—about the goods sold. It also specifies the amount of sales, and the nportation and payment terms. g of lading Is 2 document issued by the carrler—a trucking, sipping or aitine—thit les contractual conditions and terms of delivery suchas freight terms, time, place and on named to receive the goods. tement of account is a formal notice to the debtor detaling the accounts already official receipt evidences the receipt of cash by the seller or the authorized ntative: It notes the invoices paid and other details of payment.merchandising Operations LES slips are printed form: | eget eo inte forms with depositor’ name, account number and ot for cata ofthe depo doted Sess sip nates tat cash and checks wih the suPPe details were actually deposited or credited to the account holder. 6. checks 2 writen order ta bank by a depositor to pay the amount specified in the check tram his checking account the person named inthe check. Teeny sui the chek the payor while the receiver isthe payee, The purchase requisition 's 2 written request to the purchaser of 9° entity from an employee or user department ofthe same entity that goods be purchased. fe to deliver the merchandise account is ‘of merchandise occurs, the bu eller should randise, the payment terms f joulder the transportatio (of small merchandising firms jese terms informally Most large businesses, ‘The proced 1 ded, the user department fill /department. tment then prepares a purchase order after chec alogs of approved vendors. The purchase order, the quantity, description, and price of the merck ‘payment terms and transportation arrangements. purchase order, the seller forwards an invoice to the purchaser Merchandise. The Invokce—called a sales invoice by the seller and the buyer—defines the terms of the transaction. shipment of merchandise, the purchaser's receiving department sees to in the purchase order are complied with, and prepares a receiving report. the invoice for payment, the accounts payable department compares Tie se requisition, purchase order, recaving report and invoice to ensure descriptions, and prices agree. Al of the above forms—purchase requisition, purchase order, invoice, and receiving Dort-vare source documents. When the goods are received or when ttle has passed, entity should record purchases and a lability (or a cash disbursement), Generally, ain il 4| Basic Accounting the seller recognizes the sales transaction in the records when the 80005 have pq, shipped, TERMS OF TRANSACTIONS Merchandise may be purchased and sold either on credit terms or for cash on dete When goods are sold on account, a period of time called the credit period is alloweg f, payment. The length of the credit period varies across industries and may even yan, within an entity, depending on the product. an understanding as to the ted on the sales invoice ang 30 days, then payment is od is usually described a, lays is noted as “n/30", marked "n/10 eom, cash discounts. If a trade st amount after the trade practice improves the seller's cash p ny reducing the amount of ints receivable. Cash discount is design such notation as “2/10” 3ns the buyer may avail of a two percent dist the invoice is paid within the invoice date. The period covered count, in this case—ten sd the discount period. ints are called purchase discounts from the b gint and sales »m the seller's point of view. worthwhile for the buyer to take a discount if offered. borrow the money to make the payment. . Assume that an invoice for P150,000 with terms 2/10, n/30, is to be paid discount period with money borrowed for the remaining 20 days of the credit ‘an annual interest rate of 18 percent is assumed, the net savings to the buyer ) which is determined as follows: Discount of 2% on P150,000 3,000 st for 20 days at an annual rate of 18% on the amount due within the discount period: ~P147,000* x 18% x 20/360 1,470 vings Effected by Borrowing P1530 ‘Amount Due = P250,000 Invoice Price - P3,000 Cash Discountsa Calaguas Traders Mandaluyong City ‘TIN 143-777-888 VAT Sales Invoice Toul Received the above articles in good condition, Costomer’s Signansre T. Calaguas Traders Mandaluyong City TIN 143-777-888 VAT Purchase Order _*= Ship Via TermsT. Calaguas Traders Mandaluyong City ‘TIN 143-777-888 VAT No. 0513 Statement of Account T. Calaguas Traders Mandaluyong City TIN 143-777-888 VAT Official Receipt Received from the sum of, in full/partial payment of1 ed Don Vicente Fabella Development Bank | ; Peso Deposit Slip O savin “Ascount ‘Account. Teller's Vi Cash Ne, x Sia8-10 | Basic Accounting Trade Discounts ler wholesalers or retailers with price lists and €2talogs shoy suggested retail prices for their products. These firms, however, also include a scheque of wade discounts from the listed prices to enable the customer to determine t, invoice price to be paid. Trade discounts encourase the buyers to purchase produ, ef markdowns from the list price. Trade discounts should not be confused iy, of discount e jers to vary prices perio Suppliers furnish small I accounting entry for this 1e invoice price which i, jnnacle Technologies quoted a list pric de discount of 20%. If Video Fanta: List Price (P2,500 x 7) Less: 20% Trade Discount ~ invoice Price discounts may be stated in a series. Assume inste jinnacle to Video Fantastic is 20% and 10%, the inval List price (P2,500 x7) Less: 20% trade discount Balance Less: 10% trade discount Invoice Price both the buyer and the seller would record only the P24,000 the invoice price will be P12,600. first example, price while in the second example, ssportation Costs en merchandise is shipped by a common carrier—a trucking company or 2n airline the carrier prepares a freight bill in ‘accordance with the instructions of the party making fe shipping arrangements, The freight bill designates which party shoulders the costs and whether the shipment is freight prepaid or freight collect. the shipping terms are FOB shipping point oF FOB ion. F.0.8. is an abbreviation for “free on board". When the freight terms 2 the buyer shoulders the shipping costs; ownership over the 8 . fhe buyer when the inventory leaves the seller's place Freight bills usually show whether tinati FOB shipping point, passes from seller to tl—the shippin pusiness iPping point. The buyer already owns the goods while stil in transit and therefore, shoulders the transportation conte : ifthe terms are FOB destination, the seller bears the shipping costs. Title passes onlY sven the goods are received by the buyer at the point of destination; while in transit, the seller is still the owner of the goods so the seller shoulders the transportation costs In freight prepaid, the seller pays the transportation costs before shipping the goods sold; while in freight collec, the freight company Payment bY sither party will Normally, shipped frelt the terms a sometimes, the firm no carrier. Whet curs, the seller and buy _ Figure 8-3 shows which P: shoulders the costs and pays the shipper for v ‘Who Shoulders the Transportation costs? seller buyer seller Buyer Seller Figure 8-3 Treatment of Transportation Costs, by the buyer using the periodic inventory system unt, In accounting, the cost of an asset—the all costs (e.g. shipping costs) incurred to bring the In the cost of sales section of the income statement, the iccount igadded to purchases in computing for the net cost of purchases for the id to transportation out account. This Shipping costs borne by the seller are debi i is an operating expense in the income ‘account which is also called delivery expense, statement. Bas es8-12 | Basic Accounting INVENTORY SYSTEMS Merchandise inventory is the key factor in determining cost of sales. Bec, merchandise inventory represents goods available for sale, there must be a methoq i determining both the quantity and the cost of these goods. There are two Systems available to merchandising entities to record events related to merchanclse invenon the p Detailed iscussions op Sr 14, is continuously updateg the time of purchase, account. At the time of f sales is determined and recorded by ad the inventory account. With perp ntory system, both the nd cost of sales accounts receive entries throughout the accounting period andising entities are now using the perpetual Inventory system with point. jent. Computers have decreased in prices, These powerful machines cally reduced the time required to manage inventory. Supermarkets and stores use point-ofsale scanners built into checkout counters to collect data for the cash register and to update their perpetual inventory system, of point-of-sale scanners, the perpetual inventory system is more firms that sell low-volume, high-priced ge s motor vehicles, Hurniture. pany uses the perpetual inventory system, the ntory should the actual physical count at the end of the period assuming that no theft, error has occurred. Even if there is a lite chance for or suspicion of discrepancy, most entities make a physical count. At that time, the account is any inaccuracies discovered. The count provides an independent check on cof inventory that should be reported at the end ofthe period Inventory System periodic inventory system is primarily used by businesses that sell relatively {00d and that are not yet using computerized scanning systems to analyze 3. A characteristic of the periodic inventory system is that no entries are made inventory account as the merchandise is bought and sold. When goods are 8 separate set of accounts—purchases, purchases discounts, purchases allowances, and transportation in—is used to accumulate information on ‘of the purchases. Only at the end of the period, when the inventory s ywill entries be made to the inventory account to establish its proper balance.| 813 ‘Merchandising Operations ‘he periodic Inventory system will be used in the succeeding discussions. To illustrare the major parts of the merchandising income statement, selected transactions made PY +, calaguas Traders will be used unless otherwise stated. NET SALES net sales is the Gross Sales Under accrual i, revenues from the sale of merchandise are considered to be eamed in the ting period in which the title of goods passes—usually at the point of delivery—fr seller to the buyer. Gross sales consist of total sales for eash and on credit durin ss earned at the time of the sale. For this reason, there is ret sales and cash collected from those sales in a given p ‘the sales account is credited whenever sales on account or cash sales of merchandise held for resale are recorded in the sales dising firm sold one of its delivery trucks, the credit would be ‘equipment account, not to sales account. cord the sale of merchandise for cash is as follows:8-14 | Basic Accounting Sales Discounts Assume that T. Calaguas Traders sold merchanclse on Sept. 20 for P3,000; terms 29 1/60. At the time of sale, the entry is: ‘Sept. 20 | Accounts Receivable 3,000) Sales 3,000 T The customer Fe Sept, 35, which is 10 day as entry is, Sept. 30 | Ca sal 60 | ble [3,000 lection on the Sept. 20 nts taken. At the end of the period, the sales discounts account has accumulated all the sales discounts riod, The account is considered a contra-income account ang deducted from in the income statement (see Exhibit 8-2). Sales Returns ar ces Buyers may be with the merchandise received either because the goods ae damaged or d inferior quality or not in accordance with their specifications In such cases, fer may return the goods to the seller for credit if the sale was made on accout sh refund if the sale was for cash Alternatively r may just grant an allowance or deduction from the selling pice A high sal allowances figure is not commendable because it may signal oor quali s and thus may result to dissatisfied customers. Each return or allowance is recorded as a debit to an account called sales returns and allowances. An example of such transaction follows: — [eot. 17 | Sales Returns and Allowances 760 ‘Accounts Receivable or Cash) 76 To record return or allowance on Unsatisfactory merchandise The sel sues the customer a credit memorandum (i.e. Accounts Receivable ich is a formal acknowledgment that the seller has reduced the ‘customer. Sales returns and allowances is a contra-incom? lingly deducted from gross sales in the income statement (s% amo account, Exhibit 8-2) $ns_| eansportation Out en the freight fois FOB destination, the seller shoulders the transportation costs; when the term is FOB shipping point, the buyer bears the shipping costs. cose No. 1. Assume thot T. Calaguas Traders sold merchandise totaling P17,000 roe gstination freight prepaid; terms 2/10, 0/30. The transportation costs amounted t© 7,900. The entry tO record this transaction would be: Nov. 25 ere 4 r = 4 5 317,000 c 4 1,900 ‘Sales on account terms 2/10, n/30; FOB destination freight prepaid, P1,900. if this invoice is collected on Dec. 5, the sales discount will be: 17,000 x 2%). Jransportation out is an operating expense. ‘ [tees [east 4 Sales Discounts - case No. 2. Assume that T. Calaguas Traders sold merchandise totaling P17,000 FOB shipping point, freight collect; terms 2/10, n/30. The transportation costs amounted to 1,900, The entry to record this transaction would be: a Nov. 25 | Accounts Receivable Sales ‘Sold merchandise on account; terms 2/10, 1/30; FOB shipping point, freight collect. ‘There fs no debit to transportation out account since the shipping term provided that the buyer should shoulder the transportation costs. If this invoice is collected on Dec. 5, the sales discount will be P340 (P17,000 x 2%). The entry would be: Dee 5 | Cash 16,660, Sales Discounts, 340. ‘Accounts Receivable 17,000, Case No. 3. Now, assume that T. Calaguas Traders sold merchandise totaling P17,000 0B destination, freight collect; terms 2/10, n/30. The transportation costs amounted toP1,900. The entry to record this transaction would be: 25 | Accounts Receivable ___[ransportation Out Sales “Sales on accounts terms 2/10, 0/30; FOB destination, freight collect, P1,900.station charges paid By the buyer 5, by the transpo : ee Fon Dec. 5, the Sales discount wig, ‘Accounts receivable is decr his invoice is collecte the benefit of the seller. If tl 340 (P17,000 x 2%) since the discount applies total sales. 74760 Dec. 5 | Cash 15,100 al Case No. 4. ee P17,009 FOB shippit ion costs amounted ov 25 , = F 1,900 sr account terms 2/10, 0/30; FOB _ ng point, freight prepaid, P1900: ; If this invoie don Dec. 5, the sales discount will be P: x2%). The | discount onl to total sales. . | Dec. 5 7 | icounts 340. | unt Receivable 48,500 COST OF 7 Cost of sal of goods sold is the largest single expense of the merchandising business st of inventory that the entity has sold to customers. Ever) merch ness has goods availabe forsale to customers. The goods avsiie for year is the sum of two factors—merchandise inventory at te beginnit ‘and net cost of purchases during the period. If an entity is able to sell all the goods avallable for sale during a given accounting period, the cost of sales would then equal goods that had been available forsale. ° prose cases, however, the business will have goods still unsold at the end of the yea" 1? find'the actual cost of sales, the merchandise inventory at the end of the period § subtracted from the goods available for sale ‘goods costing P1,796,600 as available for sale—T. Calaguas state inning merchandise inventory and net cost of purchases (oF 5 "P1,268,600 during the year. At the end of the year, P483,000 this amount should appear as the merchandise inventory i balance sheet. ‘ending merchandise inventory is subtracted from 69% available for sal ing cost of sales is P1,313,600.‘Merchandising Operations | 8-17, =~ Calaguas Traders For ual lncome statement fear Ended Dec. 31, 2014 Cost of Sales Merchandise Inve peste iia Less: Purchases Returns Purchases Disc Net Purchases ‘Transportation in Net Cost of Purchase Goods Available for Less: Merchandise Cost of Sales 4 Goods availabe fo Sale ofthe cost of sales section. In summary, goods e from beginning inventory ‘and net cost of period or remain unsold at the end of expense for the period—as Figure 6-4 red a pictorial diagram Figure 8-4 shows jeriod com available for sale during 2 P 2 purchases, The goods are either sold during the the period. Goods ‘available for sale will ‘eventually turn to cost of sales orto asset—25 ‘merchandise inventory.8-18 |_Basic Accounting To understand fully the concent of cost of sales, itis necessary to examine the deta, affecting merchandise inventory and net cost of purchases. chased for resale. For, s, canned 00d, ang ils, paints, iron s ‘their inventories from, ndise inventory at the beginning of ting period is called the tory. Conversely, the mi at the end of the ¢ i in Exhibit 8-3, beginning " the income statement ‘inventory shown in the income statement merchandise inventory eported in the balance sheet. Effectively, the Inventory of the current [will be the beginning inventory of the next period. Net Cost of Purchases the periodic inventory method, net cost of FOSS purchases net purchases the periodic inventory method is used, all purchases of merchandise are debited ‘purchases account as shown below: 2 | Purchases ‘Accounts Payable To record purchases of merchandise; ‘terms 2/10, n/30. 15,000 15,000 The purchases account, a temporary account, is used only for merchandise purchased for resale. Its sole purpose is to accumulate the total cost of merchandise purchased during an accounting period. Purchases of other assets such as equipment should te recorded in the appropriate asset accounts. . Recording merthandise purchases # Wwoice price is known as the gross price method of recording purchases. Returns and Allowances and allowances in the seller's books are recorded as purchases returns 3nd the books of the buyer. This should be recorded as follows:Merchandising operations on ia | Recounts Payable ae Purchases Returns and Alowancer [2,000 Return of damaged merchandise purchases returns and al a 4 .d from sses in the it rate int be used ment seeds the info inmay be very andise. There are co: wered such as orderin cos romorntal am iy the rrongy invested it lere may also be lost sales result fering fy unsaleable returns may call for new purchas res or suppliers. purchases Di A erchandise pi are usually made on credit and commonly i chases discounts for nt. In relation to the Nov. 12 and 14 tr s, the payment is reco lows: BY Tov le 73000 Discounts (P13,000 x 2%) a 12,740 like purchases 1d allowances, purchases discounts is a contra accot deducted fror ‘on the income statement. If the entity makes a payment on at ‘most creditors will allow the company to take the discot applicable to | payment. The discount does not apply to transportation or other charges: ‘appear on the invoice. + Transportation I Case No. 1. ‘that T. Calaguas Traders made purchases totaling P17,000 FOB destination, ‘prepaid; terms 2/10, n/30. Transportation costs amounted to 1,900. The er Id be: Now 35 77,000 1 inks Payable 77,000 ed merchandise on account Terms 9/30; FOB destination freight id. There is no. ‘transportation in account since the shipping term provided that the Seller should shoulder the transportation costs. In addition, the seller prepaid the8-20 | Basic Accounting i freight. If this invoice is paid on Dec. 5, the purchases dl 2%). The entry would be: Dec. 5 scount will be P340 (P2795, 17,000 ‘Recounts Payable Purchases Discounts, 340 mie a “Accounts Payable Cash Purchases on account; terms FOB shipping point, freight cole ice is paid on Dec. 5, the purchases di jon in will form part of the net cost of pt 16,660 ling P17,000 FOB shi ts amounted to P1,sq) 17,000 1,900 17,000 1,900 ll be P340 (P17,000 x 2 5 | Accounts Payable 17,000 Purchases Discounts: 30) | Cash 16,660] 3, Now, assume that T. Calaguas Traders ation, freight collect; terms 2/10, n/30. ), The entry to record this transaction would ses totaling PI7,00 N costs amounted Purchases | J ‘Accounts Payable | 15,100 Cash 3,900 Purchases on account; terms 2/10, n/30; FOB destination, freight collect, P1,900. | ints payable is decreased by the transportation charges paid by the buyer for the jefit of the seller. If this invoice is paid on Dec. 5, the purchases discount will be P34 x2%) because the discount applies to total purchases, “Bee. 5 | Accounts Payable Teach Purchases Discounts 0 cat 14,760 4. Assume further that T. Calaguas Traders made purchases totaling P17, 00 point, freight prepaid; terms 2/10, n/30, P1,900. The entry to record this transaction wo The transportation wuld be:ifthis invoice is paid o buyer is not entitled total purchases. Dec. 5 {twill be useful to entries discussed eat The foregoing enti added taxes on the complete without t prove useful in acc {for Bosie Accounting. llustration. Daisy horses, fighting considered as pets specialty feeds wit region bought received was Pll lend not mink The entries related8-22 | Basic Accounting Se May 31 | Output Tax Wiput Tax: VAT Payable. 84,000 36,009 May 31 | VAT Payable 36,000 con the Ost of the but not necessarily, the quently returned or fay be deducted from the ind is made or a cred, in the invoice at the tine jarter it was given, es were granted by a VAT- receipts for the quarter in m is issued. Sales discounts gra pe excluded from the gross sales within sds from Dela Cruz on is settled within 10 days n May 30. The related |. Assume that the wholesaler purchas that a 2% sales discount is available if the date. Dela Cruz was able to collect the s: 30 | Cash ‘Output Tax Sales Discounts ‘Accounts Receivable De Cruz, because of the sales discounts granted, will pay value-added tax due of P3: ly. Extensive discussion of Value-Added Taxis in another text, Transfer and Bi Taxation Made Easy by the same authors. OPERATING EXPENSES. Operating expenses make up the third major part of the income statement for? merchandising entity. These are expenses, other than the cost of sales, which at incurred to generate profit from the entity’s major line of business—merchandising. is customary to group operating expenses into useful categories. Distribution cas istrative expenses and other operating expenses are the categories. Distribution costs or selling expenses are those expenses related directly to the entt/’ efforts to generate sales. These include sales salaries and commissions, and the relat em payroll expenses; advertising and store displays; traveling expenses: 0% uy used; depreciation of store property and equipment; and transportation outadministrative expenses are those expenses related to the general administration of the pusiness. These include officers and office salaries, and the related employer payroll expenses; Office supplies used; depreciation of office property and equipment; business taxes; Professional services; uncollectible account nd_other general office expenses. other operating expei operations of the b transactions of the et property and equipme APPENDIX PERIODIC and PERP This appendix will de 107) were the only transactions for the entire year, the balance i at year-end under the periodic inventory system is P250,000 (beginning inver year-end balance in the inventory account under the perpetual inventory $¥s P231,860. Under the perpetual inventory system, the inventory account is increased by purchas } transportation in, returns and is decreased by the cost of sales, purchases ; returns and allo ind purchases discounts. i At year-end, the physical inventory is taken, and it revealed that the actual inventory on hand is P231,500. The year-end journal entries (nos. 8 to 10) are then made to bring the inventory account aoe into agreement with the amount of the physical inventory. When posted to the general ledger, both the periodic and perpetual inventory systems result in the same ending inventory amount, P231,500. am eshibit 4 PERIODIC INVENTORY SYSTEM PERPETUAL INVENTORY SYSTEM, ' 3 costing P8000 for F20,000; ers were 2/1, n/30: ‘ 30,000 AecountsRecenable 10000 i 30,000 sales Nias > Cost of sales 8000 Inventory 0008-24 | Basic Accou 2. Customer returned merchandise costing P400 that had been sold on account for PSOO (part oft 10,000 sale Sales Returns & seo sco 0 9500 2/10, n/30 (purchases recorded 6,000 yable 600 point, freight collect: 7. Paid for merchandise purchased, refer to no. 4 cash discount taken: x 2% discount « P11): ‘Accounts Payable 5,700 ‘Accounts Payable Purchases Discounts ae Inventory ue cash 5586 cash 5585 4, Totrasfr the beginning inventory balance othe Ince Summary account (art ofthe sre ‘entries under the periodic inventory system: Income Summary 250,000 (No entry required) Inventory 250,000 ‘To record the ending inventory balance (part of the closing entries under the periodic inventorY system): Inventory 231,500 (Wo entry required) Income Summary > 234,500 “To adjust the ending perpetual inventory balance for the shrinkage during the year: Shrinkage already effected Cost of aes, 360 “Inthe no. 9 entry Inventory co