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Unformatted text preview: By Patrick Yung 1 Chapter 5: Accounting for merchandising operations NOTE REFER TO THE CHAPTER Chapter 5: Perpetual inventory system Perpetual Purchases Dr. Inventory Cr. Accounts payable Sales Dr. Accounts receivable Cr. Sales Dr. Cost of goods sold Cr. Inventory Purchases returns and allowance Dr. Accounts payable Cr. Inventory Sales returns and allowance Dr. Sales returns Cr. Accounts receivable Dr. Inventory Cr. Cost of goods sold Shrinkage Dr. Cost of goods sold Cr. Inventory Trade discount NIL Cash discount (Buyer) Dr. A/P Cr. Cash Cr. Inventory (Seller) Dr. Sales discounts Dr. Cash Cr. A/R XX allowance = goods returned for reasons of defection and unacceptable quality XX returns = goods returned for other reasons Trade discounts Purchases discounts (buyer) / Sales discounts (seller): Cash discounts Example: 2/10, n/30 (TB181) Transportation cost (carriage inwards) FOB Shipping and FOB destination (TB 183 – 184) – important to determine the switch of ownership (accounting: recording as inventory in books; law: who is responsible for the damage of the goods) FOB Shipping: title transferred to the buyer when reaching the seller’s terminals / airports (hence the buyer is responsible to pay the transportation cost (inventory cost excludes transportation) FOB Destination: title transferred to the buyer when reaching the buyer (hence the seller is responsible to pay the transportation cost and the insurance cost) (inventory cost includes transportation) By Patrick Yung 2 Inventory taking: important to periodic inventory system (to find out the closing inventory) IMPORTANT TO perpetual inventory system as well: check accuracy record, check goods stolen …...
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