Accounting Chapter 5 Notes

In this case the buyer owner of the goods at the

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Unformatted text preview: discount is offered and payment is due 30 days after the invoice date. - If Smart Touch pays within the discount period, the cash payment entry would be as followed: Jan 15 Accounts payable 700 Cash 679 Inventory 21 Paid within discount period The discount is credited to inventory because the discount for early payment decreases the actual cost paid for Inventory, as shown in the T- Account Inventory June 3 700 June 15 21 Bal 679 - What if the company pays this invoice after the discount period on June 24, 2013? The company must pay the full 700 dollars. Purchase Returns and Allowances - Businesses allow customers to return merchandise that is defective, damaged, or otherwise unsuitable. This is called a purchase return. Alternately, the seller may deduct an allowance from he amount the buyer owes. Purchase Allowances are granted to the purchaser as an incentive to keep goods that are no “as ordered.” Together, purchase returns and allowances decrease the buyer’s cost of the inventory. - Smart Touch returns the goods (CD, in this case) to RCA and records the purchase returns as follows: June 4 Accounts Payable Inventory Returned inventory to seller 100 100 Transportation Costs - purchase agreement specifies FOB (free on board) terms to determine when title to the good transfers to the purchaser and who pays the freight. • FOB shipping point means the buyer takes ownership (title) to the goods at the shipping point. In this case, the buyer (owner of the goods at the shipping point) also pays the freight. • Fob destination means the buyer takes ownership (title to the goods at the delivery destination point. In this case, the seller (owner of the goods while in transit) usually pays the freight - Freight Cost are either Freight in or Freight out • Freight in: Transportation cost to ship goods into the purchaser’s warehouse; thus, it is freight on purchased goods • Freight out: Transportation cost to ship goods out of the warehouse and to the customer, thus, it is freight on goods sold Freight In - Because paying the freight is a cost t...
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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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