Accounting Chapter 5 Notes

Decreases credit inventory decrease in quantity or

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Unformatted text preview: hat must be paid to acquire the inventory, freight in becomes part of the cost of inventory. As a result, freight in costs are debited to the Inventory account. June 1 Inventory 60 Cash 60 Paid a freight bill - If the company pays within the discount period, the discount will be computed ONLY on the merchandise cost, not the total of merchandise cost + transportation. EX: a 5,000 purchase of goods, coupled with a related freight charge of $400 on June 20 June 20 Inventory (4,000+400) 5,400 Accounts Payable 5,400 Purchased inventory on account, including freight EX: The purchased during a discount period June Accounts Payable 5,400 25 Inventory (5,000 x .03) 150 Cash 5,250 Greg’s tunes inventory T- Account Inventory June 20 Purchased 5,400 June 25 Discount 150 Bal Net cost 5,250 Freight Out - Freight out is a delivery expense to the seller. Delivery expense is an operating expense and is debited to the Delivery expense account. Operating expenses are expenses (other than Cost of goods sold) that occur in the entity’s major line of business. Assume Greg’s Tunes paid UPS 100 to ship goods to a customer on June 23. June 23 Delivery Expense 100 Cash 100 Summary of Purchase Returns and Allowances, Discounts, and Transportation Costs Purchase of Inventory Net cost of Inventory Inventory - Purchase returns and allowances – Purchase Discounts + Freight In = Inventory 35,000 - 700 - 686 + 2,100 = 35,714 Inventory Purchase of inventory 35,00 Purchase returns and allow 700 Freight in 2,500 Purchase Discount 686 Bal 35,714 - All purchase transactions are between the company and a vendor. In a perpetual system, every transaction that affects the...
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This note was uploaded on 04/08/2014 for the course ECON 121 taught by Professor Ronald during the Spring '11 term at UMBC.

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