Chapter 6 notes

1. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Accounting for
Accounting for
Merchandising
Merchandising
Businesses
Businesses
Chapter 6
Chapter 6

2. Learning ObjectivesLearning Objectives
1.1. Distinguish between the activities and financialDistinguish between the activities and financial
statements of service and merchandisingstatements of service and merchandising
businesses.businesses.
2.2. Describe and illustrate the accounting forDescribe and illustrate the accounting for
merchandise transactions.merchandise transactions.
3.3. Describe and illustrate the financial statements ofDescribe and illustrate the financial statements of
a merchandising business.a merchandising business.
4.4. Describe the adjusting and closing process for aDescribe the adjusting and closing process for a
merchandising business.merchandising business.
5.5. Describe and illustrate the use of the ratio of netDescribe and illustrate the use of the ratio of net
sales to assets in evaluating a company’ssales to assets in evaluating a company’s
operating performance.operating performance.

3. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveDistinguish between the activities
Distinguish between the activities
and financial statements of service
and financial statements of service
and merchandising businesses.
and merchandising businesses.
11

4. Service Business
Fees earned
$XXX
Operating expenses
–XXX
Net income
$XXX
Nature of Merchandising BusinessesNature of Merchandising Businesses

5. Merchandising Business
Sales $XXX
Cost of Merchandise Sold –XXX
Gross Profit $XXX
Operating Expenses –XXX
Net Income $XXX
Nature of Merchandising BusinessesNature of Merchandising Businesses

6. Nature of Merchandising BusinessesNature of Merchandising Businesses
o When merchandise is sold, the revenue isWhen merchandise is sold, the revenue is
reported as sales, and its cost is recognized asreported as sales, and its cost is recognized as
an expense calledan expense called cost of merchandisecost of merchandise soldsold..
Gross
Profit

7. Gross
Profit
Nature of Merchandising BusinessesNature of Merchandising Businesses
o The cost of merchandise sold is subtractedThe cost of merchandise sold is subtracted
from sales to arrive atfrom sales to arrive at gross profitgross profit. It is the. It is the
profit before deducting operating expenses.profit before deducting operating expenses.

8. Nature of Merchandising BusinessesNature of Merchandising Businesses
o Merchandise on hand (not sold) at the end ofMerchandise on hand (not sold) at the end of
an accounting period is calledan accounting period is called merchandisemerchandise
inventoryinventory..

9. NATURE OFNATURE OF
MERCHANDISINMERCHANDISIN
G BUSINESSESG BUSINESSES

10. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveDescribe and illustrate the
Describe and illustrate the
accounting for merchandise
accounting for merchandisetransactions.
transactions.
22

11. Purchase TransactionsPurchase Transactions
o If merchandise inventory at the end of theIf merchandise inventory at the end of the
period is determined by taking a physicalperiod is determined by taking a physical
count of inventory on hand, acount of inventory on hand, a periodicperiodic
inventory systeminventory system is being used.is being used.

12. Purchase TransactionsPurchase Transactions
o Under theUnder the perpetual inventory systemperpetual inventory system, the, the
amounts of inventory purchased, available foramounts of inventory purchased, available for
sale, and sold are continuously (perpetually)sale, and sold are continuously (perpetually)
updated in the inventory records.updated in the inventory records.

13. *
Purchase TransactionsPurchase Transactions
o On January 3, NetSolutions purchasedOn January 3, NetSolutions purchased
merchandise for cash.merchandise for cash.
NOTE: We will assume a perpetualNOTE: We will assume a perpetual
inventory system is used.inventory system is used.

14. Purchase TransactionsPurchase Transactions
o On January 4, NetSolutions purchasedOn January 4, NetSolutions purchased
merchandise on account from Thomasmerchandise on account from Thomas
Corporation.Corporation.

16. Credit TermsCredit Terms
o To encourage the buyer to pay before the endTo encourage the buyer to pay before the end
of the credit period, the seller may offer aof the credit period, the seller may offer a
discount. Credit terms of 2/10, n/30 arediscount. Credit terms of 2/10, n/30 are
summarized in the next slide (summarized in the next slide (Exhibit 2Exhibit 2).).

18. Purchases DiscountsPurchases Discounts
o A buyer may receive a discount from the sellerA buyer may receive a discount from the seller
(sales discount) for early payment of the(sales discount) for early payment of the
amount owed. From the buyer’s perspective,amount owed. From the buyer’s perspective,
such discounts are calledsuch discounts are called purchases discountspurchases discounts..

19. Purchase TransactionsPurchase Transactions
o Alpha Technologies issues an invoice forAlpha Technologies issues an invoice for
$3,000 to NetSolutions dated January 5, with$3,000 to NetSolutions dated January 5, with
terms 2/10, n/30. NetSolutions is trying toterms 2/10, n/30. NetSolutions is trying to
determine if it should pay the invoice withindetermine if it should pay the invoice within
the discount period.the discount period.

20. Discount of 2% on $3,000 $60.00
Interest for 20 days at the rate
of 6% on $2,940 – 9.80
Savings from borrowing $50.20
YESYES
Purchase TransactionsPurchase Transactions
o If NetSolutions can borrow cash at an annualIf NetSolutions can borrow cash at an annual
interest rate of 6%, should the firm borrowinterest rate of 6%, should the firm borrow
cash to pay the invoice within the discountcash to pay the invoice within the discount
period?period?

21. Purchase TransactionsPurchase Transactions
o Alpha Technologies issued an invoice forAlpha Technologies issued an invoice for
$3,000 to NetSolutions dated January 5, with$3,000 to NetSolutions dated January 5, with
terms 2/10, n/30. Based on the calculation interms 2/10, n/30. Based on the calculation in
the previous slide, NetSolutions pays thethe previous slide, NetSolutions pays the
amount due, less the discount, on January 15.amount due, less the discount, on January 15.

22. Discount Not TakenDiscount Not Taken
o Assume that, instead of paying the invoiceAssume that, instead of paying the invoice
within the discount period, NetSolutions payswithin the discount period, NetSolutions pays
the invoice on February 4.the invoice on February 4.

23. Purchases Returns and AllowancesPurchases Returns and Allowances
o AA purchases returnpurchases return involves actually returninginvolves actually returning
merchandise that is damaged or does not meetmerchandise that is damaged or does not meet
the specifications of the order. From a buyer’sthe specifications of the order. From a buyer’s
perspective, suchperspective, such returns are calledreturns are called purchasespurchases
returns and allowancesreturns and allowances..

24. Debit MemoDebit Memo
o AA debit memorandumdebit memorandum, often called a, often called a debitdebit
memomemo, informs the seller of the amount the, informs the seller of the amount the
buyer proposes to debit to the accountbuyer proposes to debit to the account
payable due the seller.payable due the seller.

26. Debit MemoDebit Memo
o NetSolutions records the return of theNetSolutions records the return of the
merchandise indicated in the debit memo inmerchandise indicated in the debit memo in
Exhibit 3Exhibit 3 as follows:as follows:

27. Merchandise PurchasedMerchandise Purchased
o On May 2, NetSolutions purchased $5,000 ofOn May 2, NetSolutions purchased $5,000 of
merchandise on account from Delta Data Link,merchandise on account from Delta Data Link,
terms 2/10, n/30.terms 2/10, n/30.

28. Merchandise ReturnedMerchandise Returned
o On May 4 , NetSolutions returned $3,000 of theOn May 4 , NetSolutions returned $3,000 of the
merchandise purchased from Delta Data Link.merchandise purchased from Delta Data Link.

29. Invoice PaidInvoice Paid
o On May 12, NetSolutions paid for the purchaseOn May 12, NetSolutions paid for the purchase
of May 2 less the return and discount.of May 2 less the return and discount.

30. Cash SalesCash Sales
o On March 3, NetSolutions sold $1,800 ofOn March 3, NetSolutions sold $1,800 of
merchandise for cash.merchandise for cash.

31. Cash SalesCash Sales
o Using the perpetual inventory system, the costUsing the perpetual inventory system, the cost
of merchandise sold and the decrease inof merchandise sold and the decrease in
merchandise inventory are also recorded.Themerchandise inventory are also recorded.The
cost of merchandise sold on March 3 is $1,200.cost of merchandise sold on March 3 is $1,200.

32. Cash SalesCash Sales
o Sales made to customers using credit cards areSales made to customers using credit cards are
recorded as cash sales. Assume thatrecorded as cash sales. Assume that
NetSolutions paid credit card processing feesNetSolutions paid credit card processing fees
of $4,150 on March 31.of $4,150 on March 31.

33. Sales on AccountSales on Account
o On March 10, NetSolutions sold merchandiseOn March 10, NetSolutions sold merchandise
on account for $18,000.The cost ofon account for $18,000.The cost of
merchandise sold was $10,800.merchandise sold was $10,800.

34. Sales DiscountsSales Discounts
o The terms for when payments for merchandiseThe terms for when payments for merchandise
are to be made are calledare to be made are called creditcredit termsterms. If. If
payment is required on delivery, the terms arepayment is required on delivery, the terms are
cash or net cash. Otherwise, the buyer iscash or net cash. Otherwise, the buyer is
allowed an amount of time, known as theallowed an amount of time, known as the creditcredit
periodperiod, in which to pay., in which to pay.

35. Receipts on AccountReceipts on Account
o On March 19, NetSolutions receives the amountOn March 19, NetSolutions receives the amount
due within ten days, so the buyer deducteddue within ten days, so the buyer deducted
$360 ($18,000 x 2%) from the invoice amount.$360 ($18,000 x 2%) from the invoice amount.

36. Credit MemoCredit Memo
o AA creditcredit memorandummemorandum, often called a, often called a creditcredit
memomemo, authorizes a credit to (decreases) the, authorizes a credit to (decreases) the
buyer’s account receivable. An example of abuyer’s account receivable. An example of a
credit memo issued by NetSolutions is showncredit memo issued by NetSolutions is shown
inin Exhibit 4Exhibit 4 (next slide).(next slide).

38. Credit MemoCredit Memo
o On April 13, issued Credit Memo No. 321 toOn April 13, issued Credit Memo No. 321 to
Krier Company for merchandise returned toKrier Company for merchandise returned to
NetSolutions. Selling price, $2,250; cost toNetSolutions. Selling price, $2,250; cost to
NetSolutions, $1,600.NetSolutions, $1,600.

39. FreightFreight
o If ownership of the merchandise passes to theIf ownership of the merchandise passes to the
buyer when the seller delivers thebuyer when the seller delivers the
merchandise to the freight carrier, the termsmerchandise to the freight carrier, the terms
are said to beare said to be FOB (free on board) shippingFOB (free on board) shipping
pointpoint..

40. FreightFreight
o On June 10, NetSolutions buys merchandiseOn June 10, NetSolutions buys merchandise
from Magna Data on account, $900, terms FOBfrom Magna Data on account, $900, terms FOB
shipping point and pays the shipping cost ofshipping point and pays the shipping cost of
$50.$50.

41. FreightFreight
o If ownership of the merchandise passes to theIf ownership of the merchandise passes to the
buyer when the buyer receives thebuyer when the buyer receives the
merchandise, the terms are said to bemerchandise, the terms are said to be FOBFOB
(free on board) destination(free on board) destination..

42. Sale Plus Freight CostSale Plus Freight Cost
o On June 15, NetSolutions sells merchandise toOn June 15, NetSolutions sells merchandise to
Kranz Company on account, $700, terms FOBKranz Company on account, $700, terms FOB
destination. The cost of the merchandise solddestination. The cost of the merchandise sold
is $480.is $480.

43. Sale Plus Freight CostSale Plus Freight Cost
o On June 15, NetSolutions pays freight of $40 onOn June 15, NetSolutions pays freight of $40 on
the sale of June 15.the sale of June 15.

44. Seller Prepays FreightSeller Prepays Freight
o On June 20, NetSolutions sells merchandise toOn June 20, NetSolutions sells merchandise to
Planter Company on account, $800, terms FOBPlanter Company on account, $800, terms FOB
shipping point. NetSolutions paid freight ofshipping point. NetSolutions paid freight of
$45, which was added to the invoice.The cost$45, which was added to the invoice.The cost
of the merchandise sold is $360.of the merchandise sold is $360.

45. Seller Prepays FreightSeller Prepays Freight

46. FREIGHT TERMSFREIGHT TERMS

47. FREIGHT TERMSFREIGHT TERMS

48. SUMMARY:SUMMARY:
RECORDINGRECORDING
MERCHANDISEMERCHANDISE
INVENTORYINVENTORY

49. DUAL NATUREDUAL NATURE
OFOF
MERCHANDISEMERCHANDISE
TRANSACTIONSTRANSACTIONS

50. DUAL NATUREDUAL NATURE
OFOF
MERCHANDISEMERCHANDISE
TRANSACTIONSTRANSACTIONS

51. DUAL NATUREDUAL NATURE
OFOF
MERCHANDISEMERCHANDISE
TRANSACTIONSTRANSACTIONS

52. DUAL NATUREDUAL NATURE
OFOF
MERCHANDISEMERCHANDISE
TRANSACTIONSTRANSACTIONS

53. DUAL NATUREDUAL NATURE
OFOF
MERCHANDISEMERCHANDISE
TRANSACTIONSTRANSACTIONS

54. DUAL NATUREDUAL NATURE
OFOF
MERCHANDISEMERCHANDISE
TRANSACTIONSTRANSACTIONS

55. DUAL NATUREDUAL NATURE
OFOF
MERCHANDISEMERCHANDISE
TRANSACTIONSTRANSACTIONS

56. DUAL NATUREDUAL NATURE
OFOF
MERCHANDISEMERCHANDISE
TRANSACTIONSTRANSACTIONS

57. CHART OFCHART OF
ACCOUNTSACCOUNTS

58. Sales TaxesSales Taxes
o On August 12, merchandise is sold on accountOn August 12, merchandise is sold on account
to Lemon Company, $100.The state has a 6%to Lemon Company, $100.The state has a 6%
sales tax.sales tax.

59. Sales TaxesSales Taxes
o On a regular basis, the seller pays to the taxingOn a regular basis, the seller pays to the taxing
authority (state) the amount of the sales taxesauthority (state) the amount of the sales taxes
collected.collected.

60. Trade DiscountsTrade Discounts
o When wholesalers offer special discounts toWhen wholesalers offer special discounts to
certain classes of buyers who order largecertain classes of buyers who order large
quantities, these discounts are calledquantities, these discounts are called tradetrade
discountsdiscounts..

61. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning Objective
Describe and illustrate the financial
Describe and illustrate the financial
statements of a merchandising
statements of a merchandisingbusiness.
business.
33

62. Multiple-Step Income StatementMultiple-Step Income Statement
o TheThe multiple-step income statementmultiple-step income statement containscontains
several sections, subsections, and subtotals.several sections, subsections, and subtotals.

63. REVENUE FROMREVENUE FROM
SALESSALES

64. Revenue from SalesRevenue from Sales
o SalesSales is the total amount charged customers foris the total amount charged customers for
merchandise sold, including cash sales andmerchandise sold, including cash sales and
sales on account.sales on account.

65. Revenue from SalesRevenue from Sales
o Sales returns and allowancesSales returns and allowances are granted byare granted by
the seller to customers for damaged orthe seller to customers for damaged or
defective merchandise.defective merchandise.

66. Revenue from SalesRevenue from Sales
o Sales discountsSales discounts are granted by the seller toare granted by the seller to
customers for early payment of amounts owed.customers for early payment of amounts owed.

67. Revenue from SalesRevenue from Sales
o Net salesNet sales is determined by subtracting salesis determined by subtracting sales
returns and allowances and sales discountsreturns and allowances and sales discounts
from sales.from sales.

68. Cost of Merchandise SoldCost of Merchandise Sold
o TheThe cost of merchandise soldcost of merchandise sold is the cost of theis the cost of the
merchandise sold to customers. Merchandisemerchandise sold to customers. Merchandise
costs consist of all the costs of acquiring thecosts consist of all the costs of acquiring the
merchandise and readying it for sale, such asmerchandise and readying it for sale, such as
purchase and freight costs.purchase and freight costs.

69. MULTIPLE-STEPMULTIPLE-STEP
INCOMEINCOME
STATEMENTSTATEMENT

70. MULTIPLE-STEPMULTIPLE-STEP
INCOMEINCOME
STATEMENTSTATEMENT

71. INCOME FROM OPERATIONSINCOME FROM OPERATIONS
Selling expensesSelling expenses areare
incurred directly in theincurred directly in the
selling of merchandise.selling of merchandise.
 Sales salariesSales salaries
 Store supplies usedStore supplies used
 Depreciation of storeDepreciation of store
equipmentequipment
 Delivery expenseDelivery expense
 Advertising expenseAdvertising expense

72. INCOME FROM OPERATIONSINCOME FROM OPERATIONS
AdministrativeAdministrative
expensesexpenses, sometimes, sometimes
calledcalled generalgeneral
expensesexpenses, are incurred, are incurred
in the administration orin the administration or
general operations ofgeneral operations of
the business.the business.
 Office salariesOffice salaries
 Depreciation of officeDepreciation of office
equipmentequipment
 Office supplies usedOffice supplies used

73. MULTIPLE-STEPMULTIPLE-STEP
INCOMEINCOME
STATEMENTSTATEMENT

74. Multiple-Step Income StatementMultiple-Step Income Statement
o Income from operationsIncome from operations, sometimes called, sometimes called
operating income, is determined byoperating income, is determined by
subtracting operating expenses from grosssubtracting operating expenses from gross
profit.profit.

75. MULTIPLE-STEPMULTIPLE-STEP
INCOMEINCOME
STATEMENTSTATEMENT

76. Other Income and ExpenseOther Income and Expense
o Other incomeOther income is revenue from sources otheris revenue from sources other
than the primary operating activity of athan the primary operating activity of a
business.business.
o Other expenseOther expense is an expense that cannot beis an expense that cannot be
traced directly to the normal operations of thetraced directly to the normal operations of the
business.business.

77. MULTIPLE-STEPMULTIPLE-STEP
INCOMEINCOME
STATEMENTSTATEMENT

78. Single-Step Income StatementSingle-Step Income Statement
o An alternative form of income statement is theAn alternative form of income statement is the
single-step income statementsingle-step income statement. As shown in the. As shown in the
next slide, the income statement fornext slide, the income statement for
NetSolutions deducts the total of all expensesNetSolutions deducts the total of all expenses
in one stepin one step from the total of all revenues.from the total of all revenues.

79. SINGLE-STEPSINGLE-STEP
INCOMEINCOME
STATEMENTSTATEMENT

80. STATEMENT OFSTATEMENT OF
OWNER’SOWNER’S
EQUITYEQUITY

81. Balance SheetBalance Sheet
o The form of balance sheet with the assets onThe form of balance sheet with the assets on
the left-hand side and the liabilities andthe left-hand side and the liabilities and
owner’s equity on the right-hand side is calledowner’s equity on the right-hand side is called
thethe account formaccount form..

82. Balance SheetBalance Sheet
o When the balance sheet is presented in aWhen the balance sheet is presented in a
downward sequence in three sections, it hasdownward sequence in three sections, it has
been prepared using the report form.This isbeen prepared using the report form.This is
the form used in the next two slides.the form used in the next two slides.

83. BALANCE SHEETBALANCE SHEET
(continued)

84. BALANCE SHEETBALANCE SHEET

85. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveDescribe the adjusting and closing
Describe the adjusting and closing
process for a merchandising
process for a merchandisingbusiness.
business.
44

86. Adjusting Entry for Inventory ShrinkageAdjusting Entry for Inventory Shrinkage
o Merchandising businesses may experienceMerchandising businesses may experience
some loss of inventory due to shoplifting,some loss of inventory due to shoplifting,
employee theft, or errors in recording oremployee theft, or errors in recording or
counting inventory.counting inventory.

87. Adjusting Entry for Inventory ShrinkageAdjusting Entry for Inventory Shrinkage
o If the balance of the Merchandise InventoryIf the balance of the Merchandise Inventory
account is larger than the total amount of theaccount is larger than the total amount of the
merchandise count, the difference is oftenmerchandise count, the difference is often
calledcalled inventory shrinkageinventory shrinkage oror inventoryinventory
shortageshortage..

88. Dec. 31, 2015Dec. 31, 2015
Account balance of Merchandise Inventory $63,950
Physical merchandise inventory on hand 62,150
Inventory shrinkage $ 1,800
Inventory ShrinkageInventory Shrinkage
o NetSolutions’ inventory records indicate theNetSolutions’ inventory records indicate the
following on December 31, 2015:following on December 31, 2015:

89. Inventory ShrinkageInventory Shrinkage
o At the end of the accounting period, inventoryAt the end of the accounting period, inventory
shrinkage is recorded by the followingshrinkage is recorded by the following
adjusting entry:adjusting entry:

90. Step 1: Closing EntriesStep 1: Closing Entries
o Debit each temporary account with a creditDebit each temporary account with a credit
balance, such as Sales, for its balance andbalance, such as Sales, for its balance and
credit Income Summary.credit Income Summary.

91. Step 2: Closing EntriesStep 2: Closing Entries
o Credit each temporary account with a debitCredit each temporary account with a debit
balance, such as an expense, for its balancebalance, such as an expense, for its balance
and debit Income Summary.and debit Income Summary.

92. Step 3: Closing EntriesStep 3: Closing Entries
o Debit Income Summary for the amount of itsDebit Income Summary for the amount of its
balance (net income) and credit the owner’sbalance (net income) and credit the owner’s
capital account.capital account.

93. Step 4: Closing EntriesStep 4: Closing Entries
o Debit the owner’s capital account for theDebit the owner’s capital account for the
balance of the drawing account and credit thebalance of the drawing account and credit the
drawing account.drawing account.

94. Closing EntriesClosing Entries
o NetSolutions’ Income Summary account afterNetSolutions’ Income Summary account after
the closing entries have been posted is asthe closing entries have been posted is as
follows:follows:

95. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objective
Learning ObjectiveDescribe and illustrate the use of
Describe and illustrate the use of
the ratio of net sales to assets in
the ratio of net sales to assets in
evaluating a company’s operating
evaluating a company’s operatingperformance.
performance.
55

96. Ratio of Net Sales to AssetsRatio of Net Sales to Assets
o TheThe ratio of net sales to assetsratio of net sales to assets measures howmeasures how
effectively a business is using its assets toeffectively a business is using its assets to
generate sales.generate sales.
Ratio of Net
Sales to
Assets
Net Sales
Average Total Assets
=

97. Ratio of Net Sales to AssetsRatio of Net Sales to Assets
o The following data (in millions) were takenThe following data (in millions) were taken
from the annual reports of Dollar Tree, Inc.:from the annual reports of Dollar Tree, Inc.:

98. Ratio of Net Sales to AssetsRatio of Net Sales to Assets
o The ratio of net sales to assets for each year areThe ratio of net sales to assets for each year are
as follows:as follows:

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Appendix
Appendix
The Periodic
The Periodic
Inventory System
Inventory System

100. PERIODICPERIODIC
INVENTORYINVENTORY
SYSTEMSYSTEM

102. Recording Merchandise TransactionsRecording Merchandise Transactions
o PurchasesPurchases. Purchases of inventory are. Purchases of inventory are
recorded in a purchases account rather than inrecorded in a purchases account rather than in
the merchandise inventory account.the merchandise inventory account.

103. Recording Merchandise TransactionsRecording Merchandise Transactions
o PurchasesPurchases DiscountsDiscounts. Purchases discounts are. Purchases discounts are
normally recorded in a separate purchasesnormally recorded in a separate purchases
discounts account.The balance of thediscounts account.The balance of the
purchases discounts account is reported as apurchases discounts account is reported as a
deduction from Purchases for the period.deduction from Purchases for the period.

104. Recording Merchandise TransactionsRecording Merchandise Transactions
o PurchasesPurchases ReturnsReturns andand AllowancesAllowances. Purchases. Purchases
returns and allowances are recorded in areturns and allowances are recorded in a
similar manner as purchase discounts.similar manner as purchase discounts.

105. Recording Merchandise TransactionsRecording Merchandise Transactions
o FreightFreight InIn.When merchandise is purchased.When merchandise is purchased
FOB shipping point, the buyer pays for theFOB shipping point, the buyer pays for the
freight. Under the periodic inventory system,freight. Under the periodic inventory system,
freight paid when purchasing merchandisefreight paid when purchasing merchandise
FOB shipping point is debited toFOB shipping point is debited to FreightFreight InIn..

106. (continued)

107. (concluded)

108. CLOSINGCLOSING
ENTRIESENTRIES
(continued)

109. (continued)
CLOSINGCLOSING
ENTRIESENTRIES

110. (concluded)
CLOSINGCLOSING
ENTRIESENTRIES

111. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Accounting for
Accounting for
Merchandising
Merchandising
Businesses
Businesses
The End
The End