ACCOUNTING FOR

MERACHANDISING
BUSINESS

Inventory Systems
Two types of inventory systems which keep
track of how much inventory has been sold
and at what price.
1. Periodic system- requires a physical count of
the inventory periodically, and at the point of
sale only records the sale price.
2. Perpetual system- at point of sale records
selling price and type of item sold. Example: a
bar code scanning system.

Differences in Recording
Purchases of Inventory- Periodic
Purchases
3,000
Accounts Payable
Sales During the Period- Periodic
Accounts Receivable
Sales

3,000

4,125
4,125

Purchases of Inventory- Perpetual

Inventory
Accounts Payable
Sales During the Period- Perpetual
Accounts Receivable
Sales
Cost of Goods Sold
Inventory

3,000
3,000
4,125
4,125
2,750

2,750

What Is Inventory Cost?

Inventory costs comprise of all expenditures
both direct and indirect, relating to acquisition,
preparation, and placement for sale.
Discounts can change the total inventory
costs.
1. Trade Discounts
Convert the catalog price to the actual price.
Record inventory at discounted price.

2. Cash Discounts
Granted for payment of invoices within a limited time
period.
Record inventory using the net method or gross method.

Cash Discounts- Net Method

Records inventory net of any
purchase (cash) discounts.
Example:
June 1:
Purchased merchandise for $10,000;
Terms of payment: 2/10, n/30;
Assuming a perpetual inventory method,
record the purchase of the inventory and
payment on June 8.

Cash Discounts- Net Method

June 1
Inventory
9,800
Accounts Payable (A/P) 9,800
June 8
A/P
Cash
June 28
A/P
Discounts Lost
Cash
June 30
Discounts Lost
A/P

Assume that
payment was not
made until June
28.

9,800

9,800
9,800
200

10,000
200

200

Assume no
payment till end
of the month (the
discount period
has lapsed) here
is the adjustment:

Cash Discounts
$10,000
Owed

$9,800
Owed
10 Days

20 Days
Supplier Loan Period

Purchase
Date

End of
Discount
Period

Final
Payment
Date

Cash Discounts- Gross Method

Records inventory gross cost; discounts
are recorded only if taken.
Example:
June 1
Purchased merchandise for $10,000;
Terms of payment: 2/10, n/30;
Assuming a perpetual inventory method,
record the purchase of the inventory and
payment on June 8.

Cash Discounts- Gross Method

June 1
Inventory
10,000
Accounts Payable (A/P) 10,000
June 8
A/P
Inventory
Cash
June 28
A/P
Cash

10,000
200
9,800
10,000
10,000

Assume that
payment was not
made until June
28.

Purchase Returns and Allowances

Adjustments are
Periodic Inventory System
also made when
Accounts Payable
400
goods are
damaged or not
Purchase Returns &
lesser in quality
Allowances
than ordered.
400
Sometimes the
Perpetual Inventory System
customer
Accounts Payable
400
returns the
goods.
Inventory

400

END!!!