Added to the account purchases to come up with gross purchases and a product

Freight In
cost
Freight In An adjunct account
Freight Out An operating expense account period cost
Deliver (seller) the merchandise from the seller’s warehouse to the shipping
FOB shipping point
point
Free on Board (FOB) Deliver from seller’s warehouse to buyer’s warehouse free of charge, the seller
Destination should pay the freight charges
Delivery charges using an air transportation (airplane) or water transportation
Freight
(ship)
Direct Extension Approach Directly extended to financial columns (that’s why have no adjusting entries)
Freight In Goods (purchase) in supplier
Freight Out Goods (sales) to customer
Closing Entry Approach Identical with the working paper of a service concern business enterprise
In adjustment column all adjusting entries are plotted plus one closing entry
Closing Entry Approach
that will close the beginning merchandise inventory
In adjustment columns will no longer contain adjusting entry related to
Direct Extension Approach
merchandise inventory
Trade Discount Motivate customers to buy in commercial quantity
Cash Discount Motivate customers to pay their account on time
Freight Collect Pay (buyer) the freight charges
FOB Destination Collect Pay (buyer) the freight charges after he receives the merchandise
FOB shipping point collect Pay (buyer) the freight charges for delivery of merchandise to shipping point
Freight Prepaid Pay (seller) the freight charges
FOB shipping point prepaid Pay (seller) the freight charges for delivery of merchandise to shipping point
FOB Destination Prepaid Pay (seller) the freight charges, prior to release at his warehouse
Sales Allowance Reduces sales price because of defect
Sales Allowance Return (not really) the merchandise
Sales Return Returns physically the merchandise by the customer
Sales Revenue account

Enumeration
A. Sales Account – sales, sales return and allowances
Types of Discount – trade discount cash discount
B. Purchase Account – purchase discount, purchase returns and allowances
C. Mode of Delivery (Freight) – FOB Destination, FOB Shipping point
D. Mode of Payment (Freight) – Freight collect, Freight prepaid
E. Freight Arrangements – Freight in and out
F. Approaches for Trading concern business enterprise – Closing entry, direct extension

Procedures to follow in Direct Extension Approach

1. Don’t plot the adjusting entry related to the merchandise inventory end
2. Extend the merchandise and inventor shown in adjusted trial balance in the debit income statement
column
3. Plot the ending inventory as follows
a. Credit to income statement column
b. Debit to balance sheet column
CHECKING: The net income under the closing entry approach will yield same net income under direct extension
approach.
Preparing Income Statement
1. There are no more debits and credits in the formal income statement presentation
2. The date is expressed as “for the period ending,” which means that the content of the report is one year
3. The net income shown in the income statements columns of the working paper is the same net income
shown in the income statement of the formal presentation