Page 11 of 18 PRINCIPLES OF ACCOUNTING 1 CHAPTER 6 WORKSHEETS - ACCOUNTING FOR MERCHANDISING BUSINESSES EXAMPLE 14- Recording sales & customer refunds/allowances Journalize the following merchandise transactions a) Sold merchandise on account $82,000 with terms 1/10, 1/30. The cost of the merchandise sold was $68,500. b) Received payment less the discount. c) Issued a $1,500 credit memo for damaged merchandise. The customer agreed to keep the merchandise JOURNAL PAGE DATE DESCRPTION POST REF DEBIT CREDIT Accounts Rec. 91.180 Sales 1180 (92.000 - 17 Cost of merch Sold 18.500 68,500 2 3 4 5 mexch- Inventory 1 EXAMPLF 15 - YOU WORK THIS ONE Joumalize the following: a) Sold merchandise on account $110,000 with terms 1/10, 1/30. The cost of the merchandise sold was $94,000 b) Received payment less the discount. c) Issued a credit memo for returned merchandise that was sold for $8,000 with terms n/30. Customer agreed to keep the merchandise JOURNAL PAGE DATE DESCRIPTION POST REF DEBIT CREDIT 2 3 4 5 1 Page 12 of 18 PRINCIPLES OF ACCOUNTING 1 CHAPTER 6 WORKSHEETS - ACCOUNTING FOR MERCHANDISING BUSINESSES FREIGHT COSTS: Purchases and sales of merchandise USUALLY involve freight. Terms of sale indicate when ownership of the merchandise passes from seller to buyer This "point" determines who pays or is responsible for the freight costs... buyer or seller FOB = "free on board "FOR SHIPPING POINT - BUYER pays/is responsible for the freight cost FOB DESTINATION - SELLER pays/is responsible for the freight costs EXAMPLE 16 - Purchase of merchandise with freight costs Assume merchandise was purchased as follows: Aug 15 - PC Outlet purchased $1,200 merchandise on account from Data Works, terms FOB shipping point (who is responsible for the freight? Aug 17 - Invoice from UPS for freight costs of $85 related to delivery of August 15 merchandise purchase from Data Works JOURNAL . . PAGE DATE DESCRIPTION POST REF DEBIT CREDIT 1 3 EXAMPLE 17 -Sale of merchandise with freight costs Assume merchandise was sold as follows: Aug 20 - Samuels Distributing sold $950 merchandise to Seltzer Co. on account, terms FOB destination (who is responsible for the freight? Cost of merchandise sold is $765. Aug 20 - Samuels Distributing pays for freight of $35 to UPS on the sale to Seltzer Co. . . JOURNAL PAGE OATE DESCRIPTION POST REF DEBIT CREDIT 2 3 4 8 Page 13 of 18 PRINCIPLES OF ACCOUNTING 1 CHAPTER 6 WORKSHEETS - ACCOUNTING FOR MERCHANDISING BUSINESSES OFTEN the SELLER will pay the freight bill FOR the buyer and will INCLUDE this cost on the BUYER'S INVOICE EXAMPLE 18 - Sale of merchandise with freight costs In this example, the SELLER pays freight FOR the BUYER; however, those freight cost must be repaid to seller and will be INCLUDED on the BUYER'S BILL! NOTE: There Is NO DISCOUNT ALLOWED on the FREIGHT portion of the invoice! Assume merchandise was sold as follows: Sept 22 - Baker Co sold $900 merchandise to Ivey Corp. on account, terms FOB shipping point (who is responsible for the freight? Cost of merchandise sold is $620 Sept 24 - Baker Co, paid freight of $55 to UPS, which was added to the invoice. The cost of merchandise sold is $685. JOURNAL DATE DESCRIPTION POST DEBIT REF. PAGE CREDIT 1 2 3 4 3 EXAMPLE 19 - FREIGHT TERMS PROBLEM Determine the amount to be paid in full settlement of each of 2 invoices (a) and (b), assuming the credit for returns & allowances was received PRIOR to payment and ALL invoices were paid within the discount period Merchandise Freight paid Freight Terms Returns & by seller allowances a) $75,000 $650 FOB Destination 1/10, n/30 $10.000 $ % X Invoice amount (cost) of merchandise purchased Less: discount allowed if paid early Net amount due on invoice if paid in discount period Plus: Freight paid by seller Total invoice amount due if paid within discount period Less: returns & allowances (discounted amount) Amount due on invoice after returns S + $ _%) $ Page 14 of 18 PRINCIPLES OF ACCOUNTING 1 CHAPTER 6 WORKSHEETS - ACCOUNTING FOR MERCHANDISING BUSINESSES Merchandise Freight paid Freight Terms Returns & by seller allowances b) $135,000 $1,250 FOB Shipping point 2/10, 1/30 $27,000 $ % x Invoice amount cost) of merchandise purchased Less: discount allowed it paid early Net amount due on Invoice if paid in discount period Plus: Freight paid by seller Total Invoice amount due if paid within discount period Less: returns & allowances (discounted amount) $ + $ %) $ Amount due on invoice after returns EXAMPLE 20 - FREIGHT TERMS PROBLEM (YOU WORK THIS ONE): Determine the amount to be paid in full settlement of each of 2 invoices (a) and (b), assuming the credit for returns & allowances was received PRIOR to payment and ALL invoices were paid within the discount period Merchandise Freight paid Freight Terms Returns & allowances by seller (a) $50,000 $500 FOB Destination 2/10, 1/30 $6,500 $ % x Invoice amount (cost) of merchandise purchased Less: discount allowed if paid early Net amount due on invoice if paid in discount period Plus: Freight paid by seller Total invoice amount due if paid within discount period Less: returns & allowances (discounted amount) Amount due on invoice after returns $ + $ X %) $ Merchandise Freight Terms Freight paid by seller $250 Returns & allowances $2,000 (b) $35,600 FOB Shipping point 2/10, 1/30 $ % X Invoice amount (cost) of merchandise purchased Less: discount allowed if paid early Net amount due on invoice if paid in discount period Plus: Freight paid by seller Total invoice amount due if paid within discount period Less: returns & allowances (discounted amount) $ + $ Amount due on invoice after returns $ Page 15 of 18 PRINCIPLES OF ACCOUNTING 1 CHAPTER 6 WORKSHEETS - ACCOUNTING FOR MERCHANDISING BUSINESSES DUAL NATURE OF MERCHANDISE TRANSACTIONS Each merchandising transaction affects a buyer AND a seller. EXAMPLE 21: Havens Co. sold merchandise to Seltzer Inc on account, $86,000, terms FOB shipping point, 1/10,n30. The cost of the merchandise sold is $51,600. Havens Co. paid freight of $750, which was included. Journalize the entries first for Havens Co., then for Seltzer Inc. for the sale, purchase, and payment of the amount due (assume all discounts are taken) HAVENS.CO. (SELLER) JOURNAL PAGE DATE DESCRPTION POST REF DEBIT CREDIT 1-14 SELTZER. INC. (BUYER) JOURNAL PAGE DATE DESCRIPTION POST REE DEBIT CREDIT 1 1 + 7 Page 16 of 18 PRINCIPLES OF ACCOUNTING 1 CHAPTER 6 WORKSHEETS - ACCOUNTING FOR MERCHANDISING BUSINESSES ACCOUNTING FOR SALES TAX Almost EVERY state levies tax on the sale of merchandise. The liability is incurred when the sale is made because the sales tax is collected from the customer at that time. EXAMPLE 22 - Accounting for Sales Tax Brown's Hardware Distributors sells $15,000 of merchandise to Handy Hardware on account. The sales tax rate is 7%. The cost of the merchandise sold is $13,000. Prepare the journal entry to record this sale. JOURNAL PAGE DATE DESCRIPTION POST REF DEBIT CREDIT EXAMPLE 23 - Accounting for Sales Tax (YOU WORK THIS ONE) Journalize the entries to record the following transactions: In September, Brooms Paper Products sells $85,000 of merchandise on account to Shady Grove Retirement Home. The sales tax rate is 7%. The cost of the merchandise sold is $81,500 In October, Brooms pays $51,500 to the state sales tax department for taxes collected . last month JOURNAL PAGE DATE DESCRIPTION POST REF DEBIT CREDIT 3 4 3 Page 17 of 18 PRINCIPLES OF ACCOUNTING 1 CHAPTER 6 WORKSHEETS - ACCOUNTING FOR MERCHANDISING BUSINESSES THE ADJUSTING PROCESS ADJUSTING FOR INVENTORY SHRINKAGE Inventory shrinkage-loss of inventory due to shoplifting, employee theft or errors Cannot be totally eliminated . Considered a normal cost of operations Amount is determined by comparing the physical inventory (count) to the balance in Merchandise Inventory for perpetual inventory systems EXAMPLE 23 - Recording inventory shrinkage: Mayflower Company's perpetual Inventory records (and the balance of the account in the ledger) show that $276,300 of merchandise should be on hand on June 30, 2019. The physical inventory (count) indicates that $265,430 of merchandise is actually on hand. Joumalize the adjusting entry for the inventory shrinkage JOURNAL PAGE DATE DESCRIPTION POST REF DEBIT CREDIT 1 EXAMPLE 24 - Recording Inventory shrinkage (YOU DO THIS ONE) United Medical Supply's perpetual inventory records indicate that $462,300 of merchandise should be on hand on December 31, 2019. The physical inventory indicates that $453.785 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage JOURNAL PAGE DATE DESCRIPTION POST REF DEBIT CREDIT Page 18 of 18 PRINCIPLES OF ACCOUNTING 1 CHAPTER 6 WORKSHEETS - ACCOUNTING FOR MERCHANDISING BUSINESSES CUSTOMER REFUNDS & ALLOWANCES At the END of an accounting period, sellers are required to getimate turns & Mowances and record the following entry: DEBIT SALES CREDIT CUSTOMER REFUNDS PAYABLE This will reduce sales and create a customer refund liability account for the ESTIMATED refunds and allowances that will be granted to customers IN THE FUTURE EXAMPLE 12 - Recording the adusting entry for Customer Refunds & Allowances Assume the following data for Diamond, Inc before its year-end adjustments. Sales for the year ended December 31, 2019. $1,750,000 Estimated percent of (future) refunds for 2019 sales: 2% PAGE Journalize the adjusting entry for estimated customer refunds & allowances JOURNAL DATE DESCRIPTION POST REF DENT + CREDIT 1 EXAMPLE 13 - Recording the adjusting entry for Customer Refunds & Allowances (YOU DO THIS ONE! Assume the following data for Autumn.Co, before its year-end adjustments: Sales for the year ended December 31, 2019. $1,100,000 Estimated percent of (future) refunds for 2019 sales: 7% Joumalize the adjusting entry for estimated customer refunds & allowances. JOURNAL PAGE DATE DESCRPTION POST REF DERIT CREDIT