Chapter 5
1
Chapter 5 – Accounting for Merchandising Businesses
LO 1. Describe merchandising operations and the two types of merchandise inventory systems
o The operating cycle of a merchandising business
o Merchandise inventory systems:
Perpetual inventory system
Periodic inventory system
LO 2. Account for the purchase of merchandise inventory using a perpetual inventory system
o Purchase of merchandise inventory
o Purchase returns and allowances
o Purchase discounts
o Transportation costs
Freight in
Freight in within discount period
o Cost of inventory purchased
Example – Purchase Transactions
Journalize the following purchase transactions for S&V Office Supply Company:
1. S & V purchased $500 worth of merchandise for cash.
2. S & V purchased $4,000 of merchandise on account; terms n/30.
3. S & V paid for the merchandise purchased in #2.
4. S & V purchased $2,000 of merchandise from its supplier on account; terms 3/15, n/45.
5. S & V returned $100 worth of the merchandise purchased in #4 because it was damaged.
6. S & V paid for the merchandise purchased in #4, less the amount returned in #5. This invoice was
paid within the discount period.
Solution:
1. Merchandise Inventory ……………………………………………………………. 500
Cash …………………………………………………………………………… 500
2. Merchandise Inventory ……………………………………………………………. 4,000
Accounts Payable ………………………………………………………… 4,000
3. Accounts Payable …………………………………………………………………… 4,000
Cash …………………………………………………………………………… 4,000
4. Merchandise Inventory ……………………………………………………………. 2,000
Accounts Payable ………………………………………………………… 2,000
