Topics: Revenue, Cost of goods sold, Generally Accepted Accounting Principles Pages: 2 (329 words) Published: April 20, 2013
Accounting Lecture – week 6 (chapter 5)

Chapter 5 – Retailing Operations

Transactions for retailer’s not service industries

buy in inventory (credit or cash)
sell inventory (credit or cash)
sales return (credit or cash)
purchase returns (credit or cash)
delivery costs = freight out

Pay Supplier Buy Inventory On Credit Sell On Credit Customer Pays

‘most retailers are registered for GST’

To work out GST on a price divide the number by 11 and without GST on a price add 10%

Two Inventory Systems

1. Periodic
2. Perpetual

Periodic Inventory Systems
* is normally used for relatively inexpensive goods
Perpetual Inventory
* keeps a running computerized record of inventory

S5.2 Analyzing purchase transactions – perpetual inventory

Suppose Kmart buys $185,800 worth of MegoBlock toys on credit terms of 2/10,n/30. Some of all the goods are damaged in shipment, so Kmart returns $18530 of the goods to MegoBlock. All amounts are inclusive of GST.

a. after the discount period

cost = 185800
returns = 18530
owing = 167270

Outside Discount = $167270

b. within the discount period
= $163925 = 98% x 167270

FOB – free on board
FOB Delivery Point – means the buyer takes ownership (title) to the goods at the delivery point FOB Destinations – means the buyer takes ownership (title) to the goods at the delivery destination point Freight In – is the transportation cost to ship the goods into the purchasers ware house Freight Out – is the transportation cost to ship goods out of the warehouse and to the customer


* inventory is brought so that it can be sold to customers * cost of sales (COS) is the cost of inventory that has been sold to customers

* sales returns and allowances and sales settlement discounts decrease the net amount of revenue earned on sales

* sales returns and allowances and Sales discounts are contra accounts to Sales revenue

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