Financial Accounting

Chapter-5 : Accounting for Merchandising Operations

Serial no. 41 -
ID 45
Name
1720201
6 A K M Abu Zafor Shakil
1720204 Abu Sufian
6
1720206
6 Md.Rakibul Haque Rakib
1721100
Contents
• Purchases of Merchandise
• FOB Shipping Point
• FOB Destination
• Purchase Discount
• Recording sales of Merchandise
• Sales Returns and Allowances
• Sales discount
 Purchases of Merchandise
• Merchandising Companies buy and sell
merchandise rather than perform services as
their primary source of revenue.
Date Account name and explanation Dr Cr
May 4 Merchandise inventory 3800
Account payable
3800
 FOB Shipping Point

Buyer pays fright costs

Date ACC Titles and Dr. Cr.
Explanation
May XX Inventory XXX
cash XXX
 FOB Destination

Seller pays fright costs

Date ACC Titles and Dr. Cr.
Explanation
May XX Freight-Out XXX
cash XXX
 Purchase Discount

• The Credit term of a purchase on account may

permit a buyer to claim a cash discount for
promt payment. The buyer calls this discount a
purchase discount.

• 1/10 EOM
• 2/10, n/30
• n/30, n/60, n/90 EOM
 Purchase Discount
• If the purchaser pays within the discounted time period:
Date Account name and explanation Dr Cr
May 14 Account payable 3500
Cash 3430
Merchandise inventory 70

• If the purchaser doesn’t pay within the discounted time period:

Date Account name and explanation Dr Cr
May 14 Account payable 3500
Cash 3500
 Recording Sales of Merchandise
• To record a sales return from a customer, The debit to the sales
returns and allowances account is for full selling price of the
purchase.
Date Account name and Explanation Dr Cr
May 4 Accounts Receivable 3800
Sales 3800

• To record a sales allowance granted for damaged merchandise.

Date Account name and Explanation Dr Cr
May 4 Cost of Goods Sold 2400
Merchandising Inventory 2400
 Sales Returns and Allowances
• Contra means against. In double entry book keeping terms, a
contra revenue account or contra.
Date Account name and Explanation Dr Cr
May 8 Sales Returns and Allowances 300
Accounts Receivable 300

• Sales returns and allowances is a contra-revenue account. It is

deducted from sales in the income statement.

Date Account name and Explanation Dr Cr

May 8 Merchandising Inventory 140
Cost of Goods Sold 140
 Sales discount

• The seller may offer the customer a cash discount - called

by the seller a sales discount - for the prompt payment of
the balance due. The seller increase (debits) the Sales
Discounts account for discounts that are taken. For
example, PW Audio supply makes tge following entry to
record the cash receipt on May 14 from sauk stereo within
the discount period.
 Sales discount

• Contra-revenue account:
Date Account name and explanation Dr Cr

May 14 Cash 3430

Sales discount 70
Account receivable 3500
 The End

Thank You