Merchandise Transactions

State the type of transaction

Buying goods for resale
➛ Purchases | Merchandise Purchase

Returning damaged goods to a supplier
➛ Purchase Returns & Allowances

Selling goods to customers
➛ Sales

Giving a price reduction to a customer
➛ Sales Allowances

1. Goods bought for resale are called merchandise

2. Freight-in is paid by the buyer

3. Trade discounts are not recorded in accounting records

4. Sales returns reduce sales revenue

1. Buys merchandise for $6,000 cash

2. Pays freight-in of $400

3. Sells goods for $9,500 cash

COGS is not recorded at the time of sale under the periodic system.

Invoice terms 3/15, n/45

➛ What is the discount rate?
➛ How many days is the discount period?
➛ How many days until full payment is due?

Discount rate
➧ 3%

Discount period
➧ 15 days

Full payment period
➧ 45 days

A retail shop frequently experiences customer returns due to damaged products.

Questions

Which account records these returns?
➛ Sales Returns & Allowances

How do sales returns affect net sales?
➛ They reduce net sales.

Why should returns be tracked separately?
➛ To measure product quality issues
➛ To control customer service problems
➛ To improve inventory and sales decisions
➛ For accurate financial reporting

How can better inventory handling reduce returns?
➛ Proper storage
➛ Careful handling
➛ Improved packaging
➛ Regular quality checks

What are merchandise transactions?
➛ Transactions involving the purchase and sale of goods for resale.

What account records goods returned by customers?
➛ Sales Returns & Allowances

Are trade discounts recorded?
➛ No

Who pays freight-in?
➛ The buyer

What does 2/10, n/30 mean?
➛ A 2% discount if paid within 10 days; otherwise full payment due in 30 days.

---

Cost of Goods Sold ➧ Here