Chapter 6 Notes - class.docx

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14 Apr 2012
Department
Course
Professor
Merchandise Inventory
Payment terms with supplier dictates amount paid + when.
o E.g. 2/10, N/30 means that a 2% discount can be taken if payment is made within 10
days; otherwise, balance is due in 30 days
Purchase Discounts C-IL account with cr. Balance (written expenses account)
Purchase Returns + Allowance Cr. balance Account
Merchandise returns credit
Freight-in cost to transport product to us.
o Shipping terms dictate who pays freight
FOB destination title changes when the goods reach the buyer
Seller pays freight
FOB shipping point title changes when the goods are loaded onto the truck
Buyer pays the freight
Total Net Purchases:
o Purchases Purchase Discounts Purchase Returns and Allowances + Freight-in (also
reflects total inventory cost)
COGS: Beginning Inventory xx
Add: Purchase Cost xx
Cost of Goods Avail for Sale xx
Less: Ending Inventory xx
Cost of Goods Sold xx
Inventory Accounting Systems
Perpetual System:
Inventory is updated every time a purchase and sale is made
o COGS is a GIL account
Standard JE’s:
Inventory xx
Cash or A/P xx
To record inventory purchase
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