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NetSolutions records the sale, the cost of the sale, and the freight as follows:
June 20
Accounts Receivable—Planter Company 800
Sales 800
Sold merchandise, terms FOB shipping point. 20
Cost of Merchandise Sold 360
Merchandise Inventory 360
Recorded cost of merchandise sold to Planter Company.
20 Accounts Receivable—Planter Company
45 Cash
45 Prepaid shipping cost on merchandise sold.
Shipping terms, the passage of title, and whether the buyer or seller is to pay the freight costs are summarized in Exhibit 5.
Terms: FOB Shipping Point
BUYER
Buyer pays freight No journal entry for freight
No journal entry for freight Merchandise Inventory XX
Cash XX
Delivery Expense XX Cash
XX Seller pays freight
Terms: FOB Destination
BUYER
TITLE passes
to buyer
TITLE passes
to buyer
Freight
Freight
E X H I B I T 5
Freight Terms
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Chapter 5 Accounting for Merchandising Businesses
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Summary: Recording Merchandise Inventory Transactions
Recording merchandise inventory transactions under the perpetual inventory system has been described and illustrated in the preceding sections. These transactions in-
volved purchases, purchases discounts, purchases returns and allowances, freight, sales, and sales returns from customers. Exhibit 6 summarizes how these transactions
are recorded in T account form.
Example Exercise
5-4 Freight Terms
Determine the amount to be paid in full settlement of each of the two invoices, a and b, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.
Merchandise Freight
Paid by Seller Freight Terms
Returns and Allowances
a. 4,500
200 FOB shipping point, 110, n30
800 b.
5,000 60
FOB destination, 210, n30 2,500
Follow My Example 5-4
a. 3,863. Purchase of 4,500 less return of 800 less the discount of 37 [4,500 – 800 × 1] plus 200 of shipping. b. 2,450. Purchase of 5,000 less return of 2,500 less the discount of 50 [5,000 – 2,500 × 2].
Practice Exercises: PE 5-4A, PE 5-4B
Example Exercise
5-4 Freight Terms
Dual Nature of Merchandise Transactions
Each merchandising transaction affects a buyer and a seller. In the following illustration, the same transactions for a seller and buyer are recorded. In this example, the seller
is Scully Company and the buyer is Burton Co.
Merchandise Inventory
Purchases of merchandise for sale XXX
Freight for merchandise purchased FOB shipping point
XXX Merchandise returned from customer XXX
Purchases discounts XXX
Purchases returns and allowances XXX
Cost of merchandise sold XXX
Cost of Merchandise Sold
Cost of merchandise sold XXX
Merchandise returned from customer XXX
E X H I B I T 6
Recording Merchandise
Inventory Transactions
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age Lear ning
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Chapter 5 Accounting for Merchandising Businesses
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