Merchandising Operations and the Accounting Cycle - Pearson

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EXHIBIT 5-3 Business Invoice JVC SALES ORDER NO. N O DE COMMANDE CUSTOMER ORDER NO. N O DE COMMANDE CLIENT SPECIAL INSTRUCTIONS INSTRUCTIONS SPÉCIALES QTY.ORDERED QTÉ COMMANDÉE TRANS CODE CODE TRANS 10 1 SALESMAN NO. N O DU VENDEUR PST NO. TVP N O MODEL / PART NUMBER MODÈLE N O / NUMÉRO DE L'ARTICLE CASH DISCOUNT ESCOMPTE AU COMPTANT JVC CANADA INC. 21 FINCHDENE SQUARE, SCARBOROUGH, ONTARIO M1X 1A7 PHONE: (416) 293-1311 FAX: (416) 293-8208 DATE SHIPPED DATE D'EXPEDITION DESCRIPTION IF PAID BY SI PAYÉ PAR WAREHOUSE ENTREPÔT GST REG. NO. TPS REG. NO INVOICE / FACTURE DEPT. NO. N O DU DEPT. 21.21 26/06/02 NOTE: NO RETURNS WILL BE ACCEPTED WITHOUT PRIOR WRITTEN AUTHORIZATION BY JVC. ALL OVERDUE ACCOUNTS ARE SUBJECT TO 1-1/2% INTEREST CHARGE PER MONTH. CLAIMS FOR DAMAGES AND/OR SHORTAGES MUST BE MADE IN WRITING DIRECTLY WITH JVC. NOTE: AUCUN RETOUR ACCEPTÉ SANS AUTORISATION ÉCRITE PRÉALABLE PAR JVC. TOUT COMPTE EN SOUFFRANCE EST PASSIBLE D'UN INTÉRET DE 1-1/2% PAR MOIS. LES RÉCLAMATIONS EN RAISON DE DOMMAGES ET (OU) D'INSUFFISANCE DOIVENT ÉTRE ADRESSÉES EN ÉCRIVANT DIRECTEMENT AUPRÈS DE JVC. SHIPPED VIA EXPÉDIER PAR QTY. SHIPPED QTÉ EXPÉDIÉE CUSTOMER COPY COPIE DU CLIENT CUSTOMER NO. N O DU CLIENT PAYMENT TERMS CONDITIONS DE PAIEMENT QTY. B/O QTÉ VEN. UNIT PRICE PRIX UNITAIRE SHIPPING CHARGES / FRAIS D'EXPÉDITION OTHER CHARGES / AUTRES FRAIS GST / TPS GST / TPS ITC PST / TVP INVOICE DATE DATE DE FACTURE DISCOUNT ESCOMPTE G.S.T. REGISTRATION NO. R102746971 4 INVOICE NO. N O FACTURE 40191-00 B 205 27/05/02 MAIN 2501 27/05/02 4104798-A 2 INVOICE TO: FACTURE À: AUSTIN SOUND CENTRE INC. 299 PRINCESS ST. 3 KINGSTON, ON SHIP TO: EXPÉDIER À: AUSTIN SOUND CENTRE INC. 299 PRINCESS ST. 3 KINGSTON, ON K7L 1B4 K7L 1B4 10542 R105794761 3% 15, NET 30 DAYS FREIGHT EXPENSE FRAIS DE TRANSPORT 003 NIL 5 1 LA100 1 QLA200 CD PLAYER CD PLAYER 6 1 0 0 1 70.00 7 0 1 LL1 CD PLAYER 1 0 131.75 0 3 QLL2 CD PLAYER 3 0 153.00 0 1 KDV33J CASSETTE DECK 0 1 2 K2U40J CASSETTE DECK 0 2 2 SKS11 SPEAKER 0 2 9 WORKING IT OUT Austin Sound Centre Inc. purchases $1,000 of merchandise on account, terms 2/10, n/30 on September 15; $100 of merchandise is returned for credit on September 20. Payment in full is made on September 25. Journalize the transactions. A: Sept. 15 Inventory 1,000 Accts. Pay. 1,000 Sept. 20 Accts. Pay. 100 Inventory 100 Sept. 25 Accts. Pay. 900 Inventory 18 Cash 882 Discount is $18 (2% $900). No discount is given on the merchandise returned. 228 Part One The Basic Structure of Accounting EXTENSION SOMME GLOBALE 70.00 131.75 459.00 660.75 0 0 46.25 0 0 707.00 JVC’s credit terms of 3% 15, NET 30 DAYS can also be expressed as 3/15 n/30. This means that Austin Sound Centre Inc. may deduct 3 percent of the total amount due if Austin pays within 15 days of the invoice date. Otherwise, the full amount— NET—is due in 30 days. Terms of simply n/30 indicate that no discount is offered, and that payment is due 30 days after the invoice date. Terms of eom mean that payment is due by the end of the current month. However, a purchase after the 25th of the current month on terms of eom can be paid at the end of the next month. Many businesses that have computerized accounting systems program their system to flag invoices as the date for taking the discount approaches so the business can take advantage of the purchase discount. Let’s use the Exhibit 5-3 transaction to illustrate accounting for a purchase discount. For the moment, disregard GST and use the invoice total of $707.00 when recording purchases and purchase discounts. GST is discussed on page 234. Austin Sound Centre Inc. records the purchase on account as follows: May 27 Inventory ..................................................................... 707.00 Accounts Payable.................................................. 707.00 Purchased inventory on account. The accounting equation shows that a credit purchase of inventory increases both assets (Inventory) and liabilities (Accounts Payable), as follows: ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY Inventory = Accounts Payable $707 = $707 + 0 8 1 The seller. 2 The invoice date, needed for determining whether the purchaser gets a discount for prompt payment (see 4). 3 The purchaser. This inventory is invoiced (billed) and shipped to the same address. 4 Credit terms of the transaction: If it pays within 15 days of the invoice date, Austin Sound may deduct 3% of the total amount. Otherwise, the full amount—net—is due in 30 days.* 5 Austin ordered 6 CD players, 3 cassette decks, and 2 speakers. 6 JVC shipped 5 CD players, no cassette decks, and no speakers. 7 Quantity discount offered by JVC. 8 Total invoice amount. 9 Austin’s payment date. How much did Austin pay? (See 10.) 10 Payment occurred 14 days after the invoice date—within the discount period—so Austin paid $685.79 ($707 – 3% discount). We will disregard GST for now. *A full discussion of discounts appears in the next section.
Austin paid within the discount period so its cash payment entry is June 10 Accounts Payable ....................................................... 707.00 Cash ........................................................................ 685.79 Inventory................................................................ 21.21 Paid on account within discount period. The discount is $21.21 [707.00 0.03] After paying the account, Austin Sound’s assets and liabilities both decrease, as follows: ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY Cash + Inventory = Accounts Payable –$685.29 -$21.21 = –$707 + 0 –$707 Note the credit to Inventory. After Austin Sound has taken its discount, Austin Sound must adjust the Inventory account to reflect its true cost of the goods. In effect, this inventory cost Austin Sound $685.79 ($707.00 minus the purchase discount of $21.21 [3% of $707.00]), as shown in the following Inventory account: Inventory May 27 707.00 June 10 21.21 Bal. 685.79 However, if Austin Sound pays this invoice after the discount period, it must pay the full invoice amount. In this case, the payment entry is June 29 Accounts Payable ....................................................... 707.00 Cash ........................................................................ 707.00 Paid on account after discount period. Without the discount, Austin Sound’s cost of the inventory is the full amount of $707, as shown in the following T-account: May 27 707.00 Inventory Purchase Returns and Allowances Most businesses allow their customers to return merchandise that is defective, damaged in shipment, or otherwise unsuitable. Or if the buyer chooses to keep damaged goods, the seller may deduct an allowance from the amount the buyer owes. Both purchase returns and purchase allowances decrease the amount that the buyer must pay the seller. Suppose the $70 CD player (model LA100) purchased by Austin Sound Centre Inc. (in Exhibit 5-3) was not the CD player ordered. Austin Sound returns the merchandise to the seller and records the purchase return as follows: June 3 Accounts Payable ....................................................... 70.00 Inventory................................................................ 70.00 Returned inventory to seller. Now assume that one of the JVC CD players was damaged in shipment to Austin Sound Centre Inc. The damage is minor, and Austin decides to keep the CD player in exchange for a $10 allowance from JVC. To record this purchase allowance, Austin Sound Centre Inc. makes this entry: June 4 Accounts Payable ....................................................... 10.00 Inventory................................................................ 10.00 Received a purchase allowance. Chapter Five Merchandising Operations and the Accounting Cycle 229
Page 1 and 2: C H 5A P T E R Merchandising Operat
Page 3 and 4: Before launching into merchandising
Page 5 and 6: Suppose FGL’s Sports Experts stor
Page 7: debiting the Inventory account. A $
Page 11 and 12: STOP & THINK Refer to the Accounts
Page 13 and 14: STOP & THINK Why is there no Januar
Page 15 and 16: sales. Therefore the GST paid on pu
Page 17 and 18: Requirement 2 Inventory Cost of Goo
Page 19 and 20: Exhibit 5-5. All the new accounts
Page 21 and 22: EXHIBIT 5-7 Financial Statements of
Page 23 and 24: Journal Adjusting Entries a. Dec. 3
Page 25 and 26: Two Key Ratios for Decision Making
Page 27 and 28: Wal-Mart 1 2 3 4 5 6 Austin Sound C
Page 29 and 30: Decision Guidelines How do merchand
Page 31 and 32: 3. Prepare the company’s multi-st
Page 33 and 34: Requirement 3 JAN KING DISTRIBUTING
Page 35 and 36: c. Buying a large enough quantity o
Page 37 and 38: Date: ___________________________ T
Page 39 and 40: 2. The R39 truck tires were ordered
Page 41 and 42: Required 1. Prepare the business’
Page 43 and 44: $7,700, $12,160, and $10,180 thousa
Page 45 and 46: 2. The note payable signed on May 2
Page 47 and 48: Trial Balance Adjustments Account T
Page 49 and 50: Sales discounts....................
Page 51 and 52: e. Store supplies on hand at Decemb
Page 53 and 54: Required 1. Inventory on hand at Se
Page 55 and 56: c. The equipment is expected to las
Page 57 and 58: HEIGHTS PHARMACY LTD. Balance Sheet
Page 59 and 60:
Supplement to Chapter 5 Accounting
Page 61 and 62:
Panel A Panel B Beginning inventory
Page 63 and 64:
AUSTIN SOUND CENTRE INC. Trial Bala
Page 65 and 66:
Assets Current assets: Cash .......
Page 67 and 68:
Journal Adjusting Entries a. Dec. 3
Page 69 and 70:
Summary Problem for Your Review The
Page 71 and 72:
Requirement 2 Adjusting Entries 200
Page 73 and 74:
Requirement 4 Inventory Cost of goo
Page 75 and 76:
Required Journalize these transacti
Page 77:
BLISS SALES COMPANY LTD. Trial Bala
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Merchandising Operations and the Accounting Cycle - Pearson

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