WEiPhones

BUY SALE
TRANSACTIO Galore TRANSACTIO
N N

BUYS SELL
S
 SUMMARY OF DIFFERENCES of SERVICE
CONCERN and MERCHANDISING CONCERN
Sales
Sales discount Sale
Transaction
Sales returns and allowances
Freight-Out
Merchandise Inventory, beg
Purchases
Freight-In
Purchase discount Buy
Transaction
Purchase returns and allowances
Merchandise Inventory, end
 ISSUES: BUY TRANSACTION

Types of Purchase (Cash or On Account)

Inventory System (Periodic or Perpetual)

Returns and Allowances

Freight

Discount
 TYPES OF
PURCHASE

ADVANCE
CASH CREDIT PAYMENT
Cash is PAID Cu s to mers are Customers pay
w h e n t h e given a period of the seller in
PURCHASE is time after th e advance
made and the sale is made to
g o o d s a r e pay the purchase
delivered to the Gives rise to
customer. RECEIVABLE
ENTRY
Dr Advances to
Gives rise to Gives rise to
Suppliers
PURCHASES PURCHASES Cr Cash
ACCOUNTS USED ACCOUNTS USED

Inventory Purchases
Cost of Sales Purchase Discount
Purchase Returns
Purchase Allowances
Freight-In
 PURCHASE OF GOODS
TRANSACTION: B Company purchased goods from Mr. A,
P100,000
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Purchases P100,000
Cash P100,000
Cash purchase of goods

B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Purchases P100,000
Accounts Payable P100,000
Purchase of goods on account
 ISSUES: BUY TRANSACTION

Types of Purchase (Cash or On Account)

Inventory System

Returns and Allowances

Discount

Freight
Pu rch ase Retu rn s: Purchase Allowances: This refers to a
Purchase returns occur situation where the buyer keeps the
when a buyer returns goods but the seller reduces the amount
goods to a seller. The that the buyer owes, often because
reasons for this can be there’s a minor problem with the goods.
varied: the goods could Fo r example, i f a b u y er recei v es a
be damaged, they might shipment of shirts and some of them
not be what the buyer have minor defects, the seller might give
ordered, or they might the buyer an allowance (i.e., a reduction in
not meet the buyer’s the price) rather than going to the trouble
quality standards. and expense of having the shirts returned
 RETURNS and ALLOWANCES
TRANSACTION: B Company purchased goods from Mr. A,
P100,000, of which 25% has been returned in a later date due to
spoilage.
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Cash P25,000
Purchase Returns and Allowances P25,000
Ret u rn of goods f rm cas h
purchase
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Accounts Payable P25,000

Purchase Returns and Allowances P25,000
Return of goods purchased on
 ISSUES: BUY TRANSACTION

Types of Purchase (Cash or On Account)

Inventory System

Returns and Allowances

Freight

Discount
 ISSUE: Who pays
and records the
FREIGHT
FREIGHT IN

FREIGHT
OUT
ISSUE: Who pays
and records the
FREIGHT
 ISSUE: Who PAYS the FREIGHT?
RESOLUTION: General Rule: The OWNER PAYS the
FREIGHT
ISSUE: Who OWNS the GOODS
RESOLUTION: The possessor owns the goods
IF IN TRANSIT: If FOB Shipping Point, BUYER owns the
goods
If FOB destination, Seller owns the goods
ISSUE: Can the NON-OWNER buyer or seller PAYS the
freight?
RESOLUTION: YES
ISSUE: Who records the FREIGHT?

RESOLUTION: The OWNER, regardless of who pays.

The buyer possesses the goods
TRANSACTION: B Company purchased goods from Mr. A,
P100,000, of which 25% has been returned in a later date due to
spoilage. Freight paid amounted to P1,000.
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Freight In P1,000
Cash P1,000
Freight is paid by the buyer
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Freight In P1,000
Accounts Payable P1,000
Freight is paid by the seller
WHO OWNS GOODS ARE IN
TRANSIT?
GENERAL RULE: The OWNER PAYS and RECORDS the freight.

BUYER OWNS THE SELLER OWNS THE

GOODS GOODS
GENERAL RULE: The OWNER PAYS and RECORDS the freight.

FREIGHT FREIGHT
PREPAID COLLECT

FOB Shipping Point: BUYER OWNS THE GOODS

 FOB Shipping FOB Shipping
Point-FREIGHT Point-FREIGHT
COLLECT PREPAID
BUYER OWNS THE GOODS

JOURNAL ENTRY of the BUYER

Dr. Freight In
Dr. Freight In
Cr. Accounts
Cr. Cash Payable
 ACCOUNTING FOR FREIGHT
PERIODIC INVENTORY SYSTEM

FOB SHIPPING POINT, FREIGHT Buyer is the Owner.

COLLECT Buyer pays the freight.
TRANSACTION: B Company purchased goods from Mr. A,
P100,000, of which 25% has been returned in a later date due to
spoilage. Freight paid amounted to P1,000.
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Freight In P1,000
Cash P1,000
To record freight
 ACCOUNTING FOR FREIGHT
PERIODIC INVENTORY SYSTEM

FOB SHIPPING POINT, FREIGHT Buyer is the Owner.

PREPAID Seller pays the freight.
TRANSACTION: B Company purchased goods from Mr. A,
P100,000, of which 25% has been returned in a later date due to
spoilage. Freight paid amounted to P1,000.
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Freight In P1,000
Accounts Payable P1,000
To record freight paid by the
seller
GENERAL RULE: The OWNER PAYS and RECORDS the freight.

FREIGHT FREIGHT
PREPAID COLLECT

FOB Destination: SELLER OWNS THE GOODS

FOB Destination- FOB Destination-
FREIGHT FREIGHT
PREPAID COLLECT

SELLER OWNS THE GOODS

JOURNAL ENTRY of the BUYER

Dr. Accounts Payable

NONE
Cr. Cash
 ACCOUNTING FOR FREIGHT
PERIODIC INVENTORY SYSTEM

FOB DESTINATION, FREIGHT Seller is the Owner.

PREPAID Seller pays the freight.
TRANSACTION: B Company purchased goods from Mr. A,
P100,000, of which 25% has been returned in a later date due to
spoilage. Freight paid amounted to P1,000.
A COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

NO ENTRY
 ACCOUNTING FOR FREIGHT
PERIODIC INVENTORY SYSTEM

FOB DESTINATION, FREIGHT Seller is the Owner.

COLLECT Buyer pays the freight.
TRANSACTION: B Company purchased goods from Mr. A,
P100,000, of which 25% has been returned in a later date due to
spoilage. Freight paid amounted to P1,000.
A COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Accounts Payable P1,000

Cash P1,000
To record payment of freight
 ISSUES: BUY TRANSACTION

Types of Purchase (Cash or On Account)

Inventory System

Returns and Allowances

Freight

Discount
Example of credit term with trade
and cash discount:
Term: 15, 10, 5, 5/10, 2/15, n/30

Trade
Cash Discount
Discount
Assuming a List Price of P100,000 and
Terms of: 15, 10, 5, 5/10, 2/15, n/30.
What is the Final Price?
List Price P100,000
Less: First trade discount (P100,000 x 15%) 15,000
New List Price P 85,000
Less: Second trade discount (P85,000 x10%)
8,500
New List Price P 76,500
Less: Third trade discount (P76,500x5%) 3,825
Final Price P 72,675
 CREDIT TERM
DAT
E
5/10, 3/15, 1/20, N/30
10 5 5 10
DAYS DAYS DAYS DAYS

Jan 5 Jan 15 Jan 20 Jan 25 Feb 4

5 3 1
% % %
 PURCHASE ON
PERIODIC
ACCOUNT
TRANSACTION:
B Company purchased on account goods from Mr. A at a
list price of P100,000. Terms: 10, 5, 2/10, n/30
List Price P
100,000
Less: First trade discount (P100,000x 10%)
10,000
New List Price P
90,000
Less: Second trade discount (P90,000x5%)
4,500
Final List Price P
85,500
 PURCHASE ON
PERIODIC
ACCOUNT
TRANSACTION:
B Company purchased on account goods from Mr. A at a
list price of P100,000. Terms: 10, 5, 2/10, n/30

B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Purchases P85,500
Accounts Payable P85,500
To record purchase on account
PERIODIC PAYMENT WITHIN DISCOUNT PERIOD
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Accounts Payable P85,500

Purchase Discount P1,710
Cash 83,790
Payment within the discount
period
PERIODIC PAYMENT BEYOND DISCOUNT PERIOD
B COMPANY
GENERAL JOURNAL
Page 1
DATE PARTICULARS PR DEBIT CREDIT

Accounts Payable P85,500

Cash P85,500
Payment beyond the discount
period