FDNACCT 06 · Merchandising

Periodic updates inventory from a period-end count; perpetual updates inventory continuously.

Periodic records purchases separately and calculates cost of sales using ending inventory at period end. Perpetual adjusts Inventory with purchases and each sale, so a sale has both a revenue entry and a cost entry; a physical count still verifies the records.

Purchases.

Under periodic inventory, purchases accumulate the cost of goods acquired for resale during the period. Merchandise inventory is updated from the period-end count instead of being increased for each purchase as in a perpetual system.

Merchandise inventory.

Perpetual records changes in stock as they occur, so buying goods increases the Merchandise inventory asset immediately. Purchases is the separate accumulation account used in the periodic system.

Record the net invoice price; no separate Trade Discount account.

The trade discount sets the actual invoice price before the purchase or sale is recorded. The entry therefore records only that net price, unlike an early-payment cash discount recorded in Purchase discounts or Sales discounts.

₱30,780 = 36,000 × 0.90 × 0.95.

Each successive discount applies to the balance after the previous discount. After 10%: ₱36,000 × 0.90 = ₱32,400; after another 5%: ₱32,400 × 0.95 = ₱30,780. Adding 10% and 5% would wrongly apply both discounts to the original list price.

2% cash discount within 10 days; net amount due within 30 days.

The first number is the cash-discount rate and the second is its allowed period; n/30 sets the deadline for paying the net amount. The course starts counting days on the day after the transaction date, and no cash discount is available after the discount period.

In the course examples, the buyer owns goods and bears freight/risk once shipped.

Title and risk transfer when the goods are shipped in the course examples, so the buyer bears the transport cost. Who actually pays the carrier is a separate question determined by prepaid or collect terms.

In the course examples, the seller retains ownership and freight/risk responsibility until destination.

The seller keeps title and transit risk until delivery to the destination, so the seller bears the freight cost. If the buyer pays the carrier under collect terms, that payment reduces the amount owed to the seller rather than becoming buyer Freight in.

Prepaid: seller actually pays. Collect: buyer actually pays. Responsibility depends separately on FOB terms.

FOB terms assign ownership, risk, and freight responsibility; prepaid or collect identifies who pays the carrier first. A seller can therefore pay freight prepaid even when shipping-point terms make the buyer responsible and obliged to reimburse it.

Freight in adds to merchandise cost; freight out is a selling expense.

Buyer-borne inbound freight helps bring purchased goods to the business and is included in merchandise cost. Seller-borne outbound freight delivers goods already sold and is a selling expense, so it is not added to the buyer’s purchase cost.

Credit, as contra-purchases.

Purchases normally increases by debit. Purchase returns and allowances reduce the purchase cost, so this contra-purchases account increases on the opposite side, by credit.

Debit, as contra-sales.

Sales normally increases by credit. Sales returns and allowances reduce the revenue kept from customers, so the contra-sales account increases by debit.

Credit.

An early-payment purchase discount reduces the buyer’s purchase cost. Because Purchases has a normal debit balance, its contra account Purchase discounts has a normal credit balance.

Debit.

An early-payment sales discount reduces the seller’s revenue from the sale. Because Sales has a normal credit balance, its contra account Sales discounts has a normal debit balance.

Sales − Sales returns/allowances − Sales discounts.

Returns and allowances reduce the selling price retained from customers, and cash discounts reduce the cash ultimately collected. Subtracting both from gross Sales gives the revenue remaining; purchases and freight are used in cost calculations instead.

Purchases − Purchase returns/allowances − Purchase discounts.

Purchase returns, allowances, and cash discounts all reduce the cost charged by suppliers. Subtract them from Purchases first; freight is added later when calculating net cost of purchases.

Net purchases + Freight in.

Freight in is the buyer’s cost of bringing goods purchased into the business, so it increases merchandise acquisition cost after supplier reductions. Freight out is a seller’s delivery expense and is not added to this figure.

Beginning inventory + Net cost of purchases − Ending inventory.

Beginning inventory and net purchase cost together represent all goods available to sell. Ending inventory is still on hand, so deducting it leaves the cost of the goods sold rather than charging unsold goods to this period.

Net sales − Cost of sales.

Net sales is revenue retained after sales reductions, and cost of sales is the cost of the goods that generated it. Their difference is gross profit; other operating expenses must still be considered before arriving at net profit.

Sales journal.

The sales journal groups similar, repeated sales on credit for efficient recording and summary posting. A cash sale instead belongs in the cash receipts journal when special journals are used.

Yes. They verify inventory and support internal controls.

Continuous book entries do not replace checking the stock actually present. The course requires physical counts to compare actual quantities with perpetual records and support internal controls.

14.5%

Remaining fraction = .90 × .95 = .855. Equivalent reduction = 1 − .855 = .145.

No; the 2% discount requires payment within 10 days

The net credit period and the shorter discount period are distinct. After day 10, the remaining balance is due without the discount.

₱153,900

Invoice = 240,000 × .90 × .95 = 205,200; down = 51,300; AP = 153,900.

₱3,000

(153,900 − 3,900) × .02 = 3,000. Remaining AP before discount is 114,000, but the stated base is 150,000.

₱111,000

153,900 − 3,900 − 36,000 − 3,000 = 111,000. Discount is one settlement component, not extra cash.

Dr Freight out ₱1,800; Cr Accounts receivable ₱1,800

The seller bears freight; the buyer paid it on the seller’s behalf, reducing the buyer’s debt.

Accounts payable

Buyer bears freight in; seller paid on buyer’s behalf, so buyer owes the seller more.

No

Net cost of purchases already includes net purchases plus freight in. Adding freight again double-counts it.

₱311,000

Gross profit = 685,000 − 374,000. Freight out is an operating expense deducted later, not in gross profit.

Allowance

No goods physically return. Seller debits Sales returns and allowances; buyer credits Purchase returns and allowances under periodic inventory.

1%

Day 15 belongs to the second window. Tiers are alternatives, not cumulative discounts.

₱1,119.24

111,924 × .01 = 1,119.24, consistent with its entry; 55,962 − 1,119.24 = 54,842.76 in the alternative timely collection.