Financial accounting

Ch 5
Accounting for merchandising operations

When purchase of goods:

Ex - suppose that the firm has purchased goods at 30000 $ on account
at 1/1 /2014, were the freight in costs 500$ and the purchase condition
the firm after receive the goods a value of 3000 $ the firm deficit.
Therefore he has returned them again to the seller

Required:

Prepare the journal entry to record the above?

Solution

1/1- To record the purchase of goods on account

Merchandise inventory 30000

Accounts payable (A.P) 30000
2- To record freight expense

Merchandise inventory 500

Cash 500
3- to record the returned goods to seller

Accounts payable 3000

Merchandise inventory 3000
We know that payments whether to be on time then there is no
discount for it or may be before the time then there are must be a
discount for this payments and this appear in case of purchase of
goods on account ,and the main purpose of cash discount is to
accelerate the buyer to redeem his obligations
And so to apply the purchase discount we should know payment
conditions

The discount terms are as a follows:

( 2/15, Net /30) this means if you pay any amount of mony due
through 15 days you will earn a discount of 2% and if you pay any
amount or the rest of amount after the the discounting period (15day)
will not earn any discount for your payment .

Ex- suppose in the previous example That the discount terms are

( 10/ 20, Net / 30) and the firm paid 6000$ at 12/1/2014 ,and the rest
of value has being paid at 22/1/2014 .

Required :

Prepared the journal entry to record above?

Firstly : we calculate the discount on the amount paid at 12/1

As afollows : amount paid X Discount rate

= 6000 X 10% = 600

The entry will be as a follows : 12/1 /2014

Account payable 6000

Cash 5400
Merchandise inventory (discount) 600
At 22/1/2014 he paid the rest amount

Note that: total value of purchase =30000

(-) returns = 3000

The rest in accounts payable = 27000

We paid 6000 at 12 /1/2014 so the rest = 21000

So the entry will be :

Accounts payable 21000

Cash 21000
2- When sale of goods :

The journal entry required to record the sales of goods and its returns
are as a follows :

When sale:

Account receivable (A.R)

Sales
Cost of goods sold
Merchandise inventory

When sales returns the entries are as a follows :

Sales returns
Accounts receivable
Merchandise inventory
Cost of goods sold
Ex-suppose that the firm has sold 5000 units at a price of 1000 $ each
with sales condition fob shipping were the freight in costs was
amounted to 500 $ .the firm after selling the goods a sales returns
happen of 50 units in the mean time the purchasing cost of 800 $

Required :prepare the journal entries to record the a above

transaction?

When sales :

Account receivable 500,000

Sales (1000X500) 500,000
The freight in costs not recorded at the seller `s books because the
buyer will bear it as it its FOB shipping point---- NO Entry

Cost of goods sold(500X800) 400,000

Merchandise inventory 400,000
When sales returns :

Sales return (50X1000) 50000

Account receivable 50000
Merchandise inventory 40000
Cost of goods sold (50X8000) 40000
Applying the discount on payments (receipts on sales) collections, and
the main purpose of cash discount is to accelerate the buyer to redeem
his obligations :

Ex- suppose that in the previous example the sales payment conditions
are (10/15, Net /30)

-suppose that the firm has collected 100,000 $ during the period of
discount and the rest after the discount period .

Required: prepare the journal entry to record above?

Collection within the discount period 100000 $ the entries will be:

Cash 90000
Sales discount(10%X10000) 10000
Account receivable 100000
Collection after the discounting period:

Note : total value of acc rec = 500000

- sales return = 50000

or balance of Acc -rec = 450000

Collection during the discount period = 100000

Rest amount of A.R = 350000

The entry will be :

Cash 350,000
Account receivable 350,000