CHAPTER 5 Periodic Inventory System: company doesn?t keep detailed inventory records throughout acct period but determines cost of goods sold only at end of acct period Perpetual Inventory System: company keeps detailed records of cost of each inventory purchase/sale and records continuously show inventory that should be on hand FOB (Free on Board): FOB Shipping Point: buyer pays for delivery costs (debit merchandise inventory, credit cash) FOB Destination: seller pays for delivery costs (debit delivery exp, credit cash) Purchase Return: return good for refund of cash or credit (whichever was used) Purchase Allowance: buyer keeps damaged/defective merchandise in exchange for deduction in original price 2/10, n/30 = two-ten, net thirty Buyer may take a 2% cash discount on the invoice price less (net of) any returns or allowance, if payment is made within 10 days of the invoice date (discount period). If buyer doesn?t pay in that time, invoice price is due in 30 days from invoice date. n/60, n/10 EOM = net sixty, net ten end of month Buyer must pay within 60 days or can get a 1% discount if paid within first 10 days of the next month. Discount Period: Within disc period: debit acct payable, credit cash, credit merchandise inventory (disc) After disc period: debit acct payable, credit cash Sale of Merchandise (2 entries) Record sale: debit cash or acct receivable, credit sales for price of goods Record cost of goods sold: debit cost of goods sold, credit merchandise inventory Sales Returns and Allowances (2 entries) Record return: debit sales returns and allowances, credit accts receivable Record inventory: debit merchandise inventory, credit cost of goods sold (If defective/damaged, then debit/credit at given value) Sales Discounts When company offers buyer a discount for quickly paying off balance: debit cash (final discounted price), debit sales (amount discounted), credits acct receivable (original price)
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