Lecture_Notes_-_Assign_4

Direct to selling store sales salaries advertising

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direct to selling store Sales salaries, advertising, transportation out, depreciation on store Administrative Expenses: general office Office salaries, insurance, rent, office supplies, depr. on office Selling expenses tend to vary more with sales, if sales fall off these should decrease. Administrative expenses are not as tied to sales. However, some sales expenses do not change regardless of sales volume – these are fixed costs. E.g. depreciation. Other Revenue/Expenses These include: Expenses: interest, loss on disposal of fixed assets Income: interest, rent, gains on sale of fixed assets. These are included at the bottom of the income statement because they are not part of the day to day business of the company. The company is in business to sell products, not to rent property or sell stores.
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Sales Transactions For the rest of this week the lecture notes will concentrate on the sale of inventory. Next week will focus on the purchase of inventory. Journal Entries for Sales Transactions 1. Sale of merchandise (key word: “sold”). Under a perpetual system, every time a sale occurs two entries are made. The first entry records the sale, the second entry records the movement of the merchandise. Dr Accounts Receivable Cr Sales Dr Cost of Merchandise Sold Cr Inventory (To record the sale of merchandise) 2. Return of merchandise. When merchandise is returned it needs to be removed from the books, so reverse the previous entry. Dr Sales Cr Accounts Receivable Dr Inventory Cr Cost of Merchandise Sold WAIT! There is a problem here - sales, a revenue account, is debited. Companies like to keep track of their returns for informational/quality control purposes. Instead of debiting sales, sales returns and allowances is debited. So reverse the original entry and added the words “returns and allowances” after sales to charge the return to the contra asset account. Correct return entry: Dr Sales Returns and Allowances Cr Accounts Receivable Dr Inventory Cr Cost of Merchandise Sold (To record the return of merchandise) 3. Record transportation costs (FOB Destination only – see info below) Dr Transportation Out Cr Accounts Payable (To record the delivery costs) 4. Receipt of cash Dr Cash Dr Sales discount Cr Accounts Receivable ( To record the receipt of cash with a discount taken)
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Terms Invoices always include the terms of the sale – sales discounts and transportation costs.
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