Efficient purchasing receiving and shipping policies

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College Accounting, Chapters 1-27
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Chapter 11 / Exercise E 11-2B
College Accounting, Chapters 1-27
Heintz/Parry
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efficient purchasing, receiving, and shipping policies c.protection from theft and loss of value d.limited access e.other effective policies to properly manage inventory Inventory transactions appear in the operating activities section of the statement of cash flows. Inventory results in an inflow of cash when goods are sold and customers pay their bills. Cash outflows result when the business buys additional inventory and pays for the goods. Appendix A - Details of Recording Inventory Transactions in a Perpetual System. Typically, the process of purchasing inventory and selling it to customers is a continuous process. A large business may have many different products it sells to customers, and may deal with many different suppliers. When a merchandiser decides to purchase inventory, it sends a purchase order to its supplier. The supplier ships the merchandise and sends an invoice, or bill, to the merchandiser. After the inventory has been received and inspected, the merchandiser pays the supplier.
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College Accounting, Chapters 1-27
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Chapter 11 / Exercise E 11-2B
College Accounting, Chapters 1-27
Heintz/Parry
Expert Verified
Accounting for Merchandise Inventory, Cost of Goods Sold, and the Gross Margin149A quantity discountand a purchase discountare two types of discounts a purchaser may be able to obtain. Both discounts are inducements from a seller to a buyer. A quantity discount offers a buyer the option of purchasing a larger number of units and, by doing so, obtaining a lower per-unit cost. A purchase discount offers the buyer the option of paying an invoice promptly and, by doing so, obtaining a slight reduction in the total price paid. Quantity discounts are never recorded whereas purchase discounts are recorded only when earned. Review the following sequence of transactions and explanations: Inventory 400Accounts Payable 400 Purchased inventory on account, term 1/15, n/30 If paid within discount period (i.e., discount earned): Accounts Payable 400Cash 396 Inventory 4 If paid after discount period (i.e., discount not earned): Accounts Payable 400Cash 400 Frequently the buyer incurs the shipping cost on merchandise and, occasionally, goods need to be returned to the seller or an allowance requested by the buyer. Shipping costs incurred by the buyer are termed freight-inand can either be debited to the inventory account or debited to a unique account—Freight-In. Either treatment reflects an added cost in acquiring goods for re-sale. (Review exhibit 6A-2 in your text.) Conversely, returns and allowancescan be credited directly to the inventory account or credited to a special account—Purchase Returns and Allowances. Either treatment is acceptable and both reflect a reduction in the cost of merchandise acquired. When merchandise is sold and a perpetual inventory system is in use, two entries are required, as follows: 1) Cash (or Accounts Receivable) XXX Sales XXX 2) Cost of Goods Sold XX Inventory XX Entry 1 records the sale at its selling price while entry 2 transfers the cost of the sale from Inventory (an asset) to Cost of Goods Sold (an expense).

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