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Chapter 7
Chapter 7
In purchasing merchandise inventory, the company pays for the purchase price of the
goods. There could be an agreement for credit terms between the buyer and seller. The
buyer might be offered discounts within a certain period to encourage early or prompt
payments. This is also true in selling the merchandise inventory. The company might also
offer credit terms and discounts to its customers.
In the next pages, we will study the bookkeeping for purchases, freight charges, credit terms
and discounts, and the periodic and perpetual inventory systems.
Under this method, the business maintains temporary accounts like purchases, purchase
returns, and sales returns. At the end of the accounting period, these temporary accounts
are used to determine the amount of inventory available for sale.
Perpetual Inventory Method
Under this method, the inventory account is continually updated for each inventory
transaction. For every journal entry of sales, a corollary journal entry for the cost of
inventory sold is also recorded. Purchases and returns are recorded in directly in the
Merchandise Inventory account. Physical count of inventory is conducted to confirm the
balances in the stock cards.
Purchases
xxxx
Cash/Accounts Payable
xxxxx
Freight-in xxxx
Cash xxxx
Sales xxxx
Cash xxxx
Merchandise Inventory
xxxx
Cash/Accounts Payable
xxxxx
SALES
Sales xxxx
Cash xxxx
Credit Terms:
2/10, n/30
means: