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MGT 11A (30)
Chapter 4

MGT 11A Chapter Notes - Chapter 4: Balance Sheet, Gross Profit, Gross Margin

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Transportation Costs and Ownership Transfer
- FOB = (free on board) determines who pays transportation costs and other associated
- FOB shipping point = ownership transfers when goods go to carrier = buyer pays
trasportatio osts erhadise ivetor...ash…
- FOB destination =ownership transfers when goods go to buyer = transportation costs
paid  seller Ddeliver epese…Cash…
- Delivery expense = transportation-out= freight out (all reported as selling expense in
seller’s ioe stateet
- Are debited to merchandise inventory
- Purchases = debits to merchandise inventory
- Later purchase discounts, returns, allowances are credited (decreases)
merchandise inventory
Sales of Merchandise
- Each sales transaction for a seller has 2 parts:
- Revenue received in form of asset (from customer)
- Cost recognized for merchandise (sold to customer)
- Under perpetual system..
- Sales transaction accounting req. recording info about both parts.
- Each sales transaction, cash or credit, req 2 entries
- Revenue
- Cost
- If sale is for cash, debit to cash instead of accts receivable
Sales Discounts
- Benefits seller by decreasing delay in receiving cash, and reduces future collection
- Sales Discounts (contra revenue account) is deducted from Sales acct when calculating
net sales
- Helps to assess effectiveness & cost of discount policy
Sales Returns and Allowance
- Merchandise returned to seller after sale
- Sales allowances = reductions in selling price of merchandise sold to customers
Completing Accounting Cycle
- Beginning inventory + net cost of purchases = merchandise for sale
- As things are being sold, cost recorded in cost of goods sold (on income statement)
Adjusting Entries-Merchandisers
- Adjusting entries same for merchandising & service companies
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