Merchandizing operation

Merchandise inventory - The current asset which reports the cost of a retailer's, wholesalers, or distributor's goods purchased to be resold, which have not yet been sold as of the balance sheet date. Merchandizing operation - refers buying and selling goods for business purpose. Generally buying goods at low price and selling it at higher price in order to earn profit. 2/10, n/30 - This term is read Two ten, net thirty and means that the buyer will receive a 2 percent discount on the purchase price if the invoice is paid within ten days of the invoice date, else the total (net) is due within thirty days. 2/10 - 2% discount if paid within 10 days. 1/10 EOM - 1% discount if paid within first 10 days of next month. n/30, n/60, or n/10 EOM - Net amount due in 30 days, 60 days, or within the first 10 days of the next
month.

Periodic inventory system - An inventory system under which the company does not keep detailed inventory records throughout the accounting period but determines the cost of goods sold only at the end of an accounting period. Features: 1. Purchases of merchandise increase Purchases. 2. Ending Inventory determined by physical count. 3. Calculation of Cost of Goods Sold. Perpetual inventory system - An inventory system under which the company keeps detailed records of the cost of each inventory purchase and sale and the records continuously show the inventory that should be on hand. Features: 1. Purchases increase Merchandise Inventory. 2. Freight costs, Purchase Returns and Allowances and Purchase Discounts are included in Merchandise Inventory. 3. Cost of goods sold is increased and Merchandise Inventory is decreased for each sale. 4. Physical count done to verify Inventory balance. Free on Board (FOB) point - point of transfer which determines who owns the goods and who pays the transportation costs

FOB shipping point FOB destination

Ownership Transfers when Goods Passed to Carrier Buyer

Transportation Costs Paid By Buyer Seller

FOB shipping point means that goods are placed free on board the common carrier by the seller, and the buyer pays the freight costs.

FOB destination - seller places the goods Free On Board to the buyers place of business, and seller pays freight costs. First-In, First-Out (FIFO) Inventory Costing Method Inventory costing method in which the first costs into inventory are the first costs out to cost of goods sold. Ending inventory is based on the costs of the most recent purchases. For example, if a company buys 10 widgets at $20 each, then buys 10 more at $19 each, the company would assign the $20 cost to the first 10 widgets it sells, then begin to assign the $19 cost. Last-In, First-Out (LIFO) Inventory Costing Method Inventory costing method in which the last costs into inventory are the first costs out to cost of goods sold. The method leaves the earliest purchases of the periodin ending inventory.
For example under the LIFO method, a company would assign the newest cost of $19 to the first 10 units sold, then move on to the $20 cost, assuming it had not made another purchase in the meantime.

Weighted Average Method Issuing materials at an average cost assumes that each lot taken from the storeroom is composed of uniform quantities from each shipment in stock at the date of issue. Weighted average price is calculated by dividing the total cost of materials in stock at any time by the total quantity of materials in hand by that time. In this method average cost of materials purchased is charged to production rather than actual cost.

Moving average method A method that requires that after each purchase, a new weighted
average of the cost is calculated; this determines the cost of each sale before the next purchase. This method is used if a perpetual inventory system is the standard for the business.

Specific Identification Method The specific identification method perfectly matches inventory
costs with units sold, assigning the exact cost of each sold inventory item when the specific item is sold. This method is not suited for businesses that sell high volumes of relatively homogenous products, such as food producers, but it can be ideal for companies that sell high-dollar items with relatively low volume, such as automobiles or yachts.