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acct201astudyguidechap5and6

# acct201astudyguidechap5and6 - 1 perpetual inventory system...

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1. perpetual inventory system: a) maintain detailed records of purchases and sales b) cost of goods sold is determined with each sale. Computers and electronic equipment (bar codes) make it very cost effective. 2. periodic inventory systems: a) no detailed records. b) cost of goods sold determined at end of the period by taking a physical count and pricing it. 3. Purchase discounts: a) Credit terms may allow buyer to claim a cash discount if payment is made within a certain specified time b) Purchaser saves money and seller converts account receivable to cash faster. Credit terms may be written“2/10, net 30” which means 2% cash discount if paid within 10 days of invoice date, otherwise pay the full amount within 30 days. 1/10, EOM means that a 1% discount is available if the invoice is paid within the first 10 days of next month. Original price = 3500. (2/10, net 30). Discount is taken = \$70 (3500*2%). Amount of cash paid is 3430 (3500-70). Decreases AP by the gross price, 3500. reduces merchandise inventory by the \$70 discount and reduces cash by the net amount owed (3430). How to determine whether to use purchase discount: take the discount rate, 2%. = (2%*365/20) = 36.5% (annual interest rate) the 20 comes from 30-10. Month minus the amount days for the discount.

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acct201astudyguidechap5and6 - 1 perpetual inventory system...

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