Chapter 5

Accounting for
Merchandising Businesses
Accounting, 21st Edition
Warren Reeve Fess
Lecturer: ismai aden farah
© Copyright 2004 South-Western, a division
PowerPoint Presentation by Douglas Cloud of Thomson Learning. All rights reserved.
Professor Emeritus of Accounting
Pepperdine University Task Force Image Gallery clip art included in this
electronic presentation is used with the permission of
NVTech Inc.
 Purchase
Transactions
 Purchase Transactions
Post.
Date Description Ref. Dr Cr.
2007
1 June.1 Purchases 2 510 00
2 Cash 2 510 00
3 Purchased inventory from
4
Bowen Co.
5

On June 1, Purchased merchandise for

cash from Bowen Company, $2,510.
 Purchases on Account
Post.
Date Description Ref. Dr Cr.
2007
1 June.5 Purchases 30,000
2 Accounts Payable-Owen Co 30,000
3 Purchased inventory from
4
Owen Co.
5

Purchase $30,000 of merchandise on

account from Owen Co., terms 2/10,
n/30
Purchases Returns and Allowances

A purchases return involves actually

returning merchandise that is
damaged or does not meet the
specifications of the order.

When the defective or incorrect

merchandise is kept by the buyer and
the vendor makes a price adjustment,
this is a purchases allowance.
 Purchases Returns and Allowances

On June 8, returned merchandise

purchased on account from Owen
co on June 5, $500
June 8 Accounts Payable—Owen Co 500
Purchase Returns & Allowance 500
Returned portion of
merchandise purchased.
 Purchase Discounts
JOURNAL PAGE 27
Post.
Date Description Ref. Dr Cr.
2007
1 June. 15Accounts payable- Owen Co 29, 500
2 Cash 28,910
3 Purchase Discounts 590
4
5

On June 15, paid Owen Co. for

purchase of June 5.
Sales Transactions
 Cash Sales
JOURNAL PAGE 26
Post.
Date Description Ref. Dr Cr.
2007
1 June. 16 Cash 1 800 00
2 Sales 1 800 00
3 To record cash sales.
4
5

On June 16, a firm sold $1,800 of

merchandise for cash.
 Sales on Account
June. 18 Accounts Receivable—Jone Co. 12,500
Sales 12,500
Invoice No. 7172.

On June 18, sold merchandise on account to

Jones Co. $12,500, 1/10, n/30
Sales Returns and Allowances
Merchandise that is returned to the
vendor is referred to as a sales return.

If there is a defect in the product or the

wrong item was shipped, the seller
may reduce the initial price at which
the goods were sold. This is known as
a sales allowance.
 Sales Returns and Allowances
June. 21 Sales Returns and Allowances 4,000
Accounts Receivable—Jones Co. 4,000
Credit Memo No. 32.

On June 21, received merchandise returned on account

from Jones Co. $4,000.
 Sales Discounts
The terms for when payments for
merchandise are to be made are
called credit terms.

If buyer is allowed an
amount of time to pay, it is
known as the credit period.
Sales Discounts
Credit Terms

If invoice is
paid within Invoice for
$1,500
10 days of
Terms:
invoice date 2/10, n/30

$1,470 paid (less

2% as a cash
discount)
 Sales Discounts
Credit Terms

If invoice is
Invoice for NOT paid
$1,500 within 10
Terms: days of
2/10, n/30 invoice date
$1,500 PAID
 Sales Discounts

Jan. 28 Cash 8,415

Sales Discounts 85
Accounts Receivable—Sims Co. 8500
Collection of Invoice
No. 7172, less discount.

On June 28, received a payment from Jones

Co.
Transportation
Costs
 FOB Shipping Point

Buyer pays freight costs and debits

Transportation In

Fruit Express

Title passes to buyer as

shipment leaves
shipping point.
 FOB Shipping Point
June 10 Purchases 900 00
Accounts Payable—Magna Data 900 00
Purchased merchandise, terms
FOB shipping point.

10 Transportation In 50 00
Cash 50 00
Paid shipping cost .

On June 10, NetSolutions buys merchandise from

Magna Data on account, $900, terms FOB shipping
point and pays the transportation cost of $50.
 FOB Destination

Seller pays freight costs and debits

Transportation Out

Fruit Express

Title passes to buyer

upon arrival at
destination.
 FOB Destination
June 30 Accounts Receivable—Kranz Co. 700 00
Sales 700 00

June 30 Transportation Out 40 00

Cash 40 00

On June 30, NetSolutions sells merchandise to Kranz

Company on account, $700, terms FOB destination.
NetSolutions pays the transportation cost of $40.
 Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
Accounts Receivable—Burton Co. 7,500
Sales 7,500

Burton Company (Buyer)

Purchases. 7,500
Accounts Payable—Scully Co. 7,500

July 1. Scully Company sold merchandise on account

to Burton Co., $7,500, terms FOB shipping point, n/45.
 Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
No entry.

Burton Company (Buyer)

Transportation In 150
Cash 150

July 2. Burton Company paid transportation charges of

$150 on July 1 purchase from Scully Company.
 Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
Accounts Receivable—Burton Co. 5,000
Sales 5,000

Burton Company (Buyer)

Purchases. 5,000
Accounts Payable—Scully Co. 5,000

July 5. Scully Company sold merchandise on account

to Burton Co., $5,000, terms FOB Destination, n/30.
 Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
Transportation Out 250
Cash 250

Burton Company (Buyer)

No entry.

July 7. Scully Company paid transportation costs

of $250 for delivery of merchandise sold to
Burton Company on July 5.
 Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
Sales Returns and Allowances 1,000
Accounts Receivable—Burton Co. 1,000

Burton Company (Buyer)

Accounts Payable—Scully Co. 1,000
Purchase Returns & Allowances 1,000
July 13. Scully Company issued Burton Company a credit
memorandum for $1,000 of merchandise returned from a July 5
purchase on account.
 Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
Cash 4,000
Accounts Receivable—Burton Co. 4,000

Burton Company (Buyer)

Accounts Payable—Scully Co. 4,000
Cash 4,000

July 15. Scully Company received payment

from Burton Company for purchase of July 5.
 Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
Accounts Receivable—Burton Co. 12,000
Sales 12,000

Accounts Receivable—Burton Co. 500

Cash 500
Burton Company (Buyer)
Purchases 12,000
Transportation In 500
Accounts Payable—Scully Co. 12,500
July 18. Scully Company sold merchandise on account to Burton
Company, $12,000, terms FOB shipping point, 2/10, n/eom. Scully
prepaid transportation costs of $500, which were added to the
invoice.
 Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
Cash 12,260
Sales Discounts 240
Accounts Receivable—Burton Co. 12,500

Burton Company (Buyer)

Accounts Payable—Scully Co. 12,500
Purchase Discount 240
Cash 12,260

July 28. Scully Company received payment

from Burton Company for purchase of July
18, less discount (2% x $12,000).
Chapter 4

The End