Accounting for a

Merchandising Business
Introduction
MERCHANDISING COMPANY

A merchandising company
buys and sells goods to earn a
profit.
1) Wholesalers sell to retailers
2) Retailers sell to consumers

Primary source of revenue is

Sales
C1
Merchandising Activities

Merchandising Companies

Manufacturer Wholesaler Retailer Customer

4-4
 Merchandising Activities
•Products that a company acquires to
resell to customers are referred to as
merchandise (also called goods /
inventory).

•A merchandiser earns net income

by buying and selling merchandise.

•A wholesaler is an intermediary that

buys products from manufacturers or
other wholesalers and sells them to
C1
Service Business

Service organizations sell time to earn revenue.

Examples:
Examples: Accounting
Accounting firms,
firms, law
law firms
firms and
and plumbing
plumbing
services
services

Minus Equals Net

Revenues Expenses
income

4-6
 Merchandising Activities
Revenues (net sales) from selling
merchandise
minus
cost of goods sold (the expense of
buying and preparing the merchandise) to
customers
is called
gross profit (also called gross margin).

Gross profit
minus
expenses (generally called operating
expenses) determines the
 MEASURING PROFIT
 Expenses for a merchandiser are
divided into two categories:
1 Cost of goods sold (Cost of Sales)
 The total cost of merchandise sold during
the period
2 Operating expenses
 Expenses incurred in the process of earning
sales revenue (General Expenses, Selling
Expenses, Other Operating Expenses)
 Gross profit is equal to Sales Revenue
less Cost of Goods Sold
Merchandising Business
• one, which maintains a stock of goods
or merchandise to be sold at a price
higher than its cost.
• Cost of the merchandise consists
• the purchase price and
• incidental cost like freight charges.
• Examples: grocery, drugstore,
bookstore, department store &
hardware.
 COMPARISON OF INCOME STATEMENTS
Service companies perform services for a fee.
 In ascertaining profit, a basic income statement is all
that is needed.
 Profit is measured as the difference between revenues
from service and expenses.
Merchandising companies earn profit by buying
and selling goods.
 Use the same basic accounting methods as service
companies, but the process of buying and selling
merchandise requires some additional accounts and
concepts.
 This process results in a more complex income
statement.
 To provide a better measure of performance, the income
statement of merchandising business is presented with
additional items.
 COMPARISON OF INCOME
STATEMENTS (pp. 308 – 309)
Service Merchandising
Company Company
Income Statement Income Statement
Service Revenue
Net Sales
Minus
Minus Cost of Sales
Equals
Expenses Gross Profit
Equals Add or minus
Income or Expenses
Profit Equals
Profit
 Gloria Detoya Traders
Income Statement
For the Year Ended Dec. 31, 2009

Net Sales P 2,393,250

Cost of Sales 1,313,600
Gross Profit P 1,079,650
Operating Expense 586,040
Operating Profit P 493,610
Finance Cost 38,400
Profit before tax P 455,210
Income Tax Expense (30%) 136,563
Profit P 318,647
OPERATING CYCLE FOR A
MERCHANDISING BUSINESS
 Operating Cycle for a Merchandiser

Begins with the purchase of merchandise and ends

with the collection of cash from the sale of merchandise.

Cash Credit
Sale Cash Sale
Purchases collection Purchases

Merchandise
Cash Accounts
inventory
sales receivable

Merchandise
inventory Credit sales
SOURCE DOCUMENTS
(pp. 310-315)
SOURCE DOCUMENTS
Merchandising businesses use various
business forms and documents to help
identify the transactions that should be
recorded in the books of accounts.
These source documents contain vital
information about the nature and amount
of the transactions.
SOURCE DOCUMENTS
Sales Invoice
prepared by the seller of goods and
submitted to the buyer.
contains the name and address of the buyer,
the date of sale and information—quantity,
unit, description and unit price—about the
goods sold.
specifies the amount of sales; the terms of
payment and transportation mode.
 Kashato Shirts
Therese Ballada - Proprietor
Suite 203 KB Arizona Tower
838 P. Campa St., Sampaloc, Manila
TIN 038-000-777-408 VAT
No. 0254
Sales Invoice
Sold To Date
Address Terms

Qty. Unit Description Unit Price Amount

Total
ORIGINAL COPY Received the above good(s) in good condition.

Customer's Signature
SOURCE DOCUMENTS
Bill of lading
a document issued by the carrier—a trucking,
shipping or airline—that specifies contractual
conditions and terms of delivery such as
freight terms, time, place, and the person
named to receive the goods.
SOURCE DOCUMENTS
statement of account
a formal notice detailing the accounts
already due.

official receipt
evidences the receipt of cash by the seller or
the authorized representative.
notes the invoices paid and other details of
payment.
 Kashato Shirt
Payment for: Therese Ballada - Proprietor
Invoice No. Amount Suite 203 KB Arizona Tower
Php 838 P. Campa St., Sampaloc, Manila
TIN 038-000-777-408 VAT
No. 0232
Form of Payment: Official Receipt
Cash Php Date:
Check
Date Received from of
Check No. the sum of (Php. )
Bank in full/partial payment of .
DUPLICATE COPY
By:

Authorized Signature
SOURCE DOCUMENTS
Deposit slips
printed forms with spaces for depositor’s
name, account number and other details of
the deposit.
A validated deposit slip indicates that
cash and checks with the supplied details
where actually deposited or credited to the
name of the account holder.
 SOURCE DOCUMENTS
check
a written order to a bank by a depositor to
pay the amount specified in the check from
checking account to the person named in the
check.
The entity issuing the check is the payor
while the receiver
Account No.
is the payee.
Account Name Check No. R/T No.
0542-0078-27 Kashato Shirts 081191 01004
117-2

Pay to the Order of P

Pesos

BANK OF THE PHILIPPINE ISLANDS

Morayta-FEU Branch
Tech. Bldg., FEU Comp., Morayta St.,Mla.
"081191"01009""1172:0592007827
SOURCE DOCUMENTS
Purchase order
an authorization made by the buyer to the
seller to deliver the merchandise as detailed
in the form.
purchase requisition
a written request to the purchaser of an
entity from an employee of the same entity
that goods be purchased.
SOURCE DOCUMENTS
Receiving report
a document containing information about
goods received from a vendor.
records the quantities and description of the
goods delivered.

A credit memorandum
a form used by the seller to notify the buyer
that his account is being decreased due to
errors or other factors requiring adjustments.
Returns & Allowances Transactions
INVENTORY SYSTEMS (page
318)
 INVENTORY SYSTEM
Merchandise inventory is the key
factor in determining cost of sales
(COST OF GOODS SOLD).
Because merchandise inventory
represents goods available for
sale, there must be a method of
determining both the quantity and
the cost of these goods.
INVENTORY SYSTEM
 Two (2) systems available to merchandising
entities to record events for merchandise
inventory:
1. perpetual inventory system
2. periodic inventory system
Periodic Inventory System
primarily used by businesses
that sell relatively inexpensive
goods and
are not yet using computerized
scanning system to analyze goods
sold.
 Periodic Inventory System
A characteristic of the periodic inventory system
1. no entries are made to the inventory account
as the merchandise is bought and sold.
2. When goods are purchased, a separate set
of accounts – purchases, purchase discounts,
purchases return and allowances, and
transportation in – is used to accumulate
information on the net cost of the purchase.
3. end of the period, when the inventory is
counted, will entries be made to the inventory
account to establish its proper balance.
Perpetual Inventory System
an alternative to the periodic inventory
system.
the inventory account is continuously
updated.
Both the inventory & cost of
sales (COST OF GOODS SOLD)
accounts receive entries throughout the
accounting period.
Perpetual Inventory System
Perpetual updates
at the time of purchase,
merchandise acquisitions be recorded as
debits to the inventory account.
at the time of sale,
the cost of sales is determined and recorded
as debit to the cost of sales account and a
credit to the inventory account.
Perpetual Inventory
System
more advisable for firms that sell low-
volume, high-priced goods
motor vehicles, jewelry and furniture

Many merchandising entities are now using

the perpetual inventory system with point-
of-sale equipment.
TERMS OF TRANSACTIONS
(page 312)
PERIODIC INVENTORY SYSTEM will be used in the
succeeding discussions.
 TERMS OF TRANSACTIONS
Agreement or understanding between parties
(buyer & seller) as to the amount and time of
payment when goods are purchased or sold on
account

2/10, n/30, FOB Shipping Point, Freight

Collect

included in the sales invoice

 CREDIT PERIOD (n/30)
 CASH DISCOUNTS (2/10)
 TRANSPORTATION COSTS (Shipping Point,
Freight Collect)
TERMS
a. CREDIT PERIOD
 Period of time for payment provided by the
seller to the buyer
1. n/30
 Payment should be made within 30 days
after purchase

2. n/10 eom
 Payment is due 10 days after the end of
the month
 DISCOUNTS
Deductions to the selling price given by the
seller to the buyer upon complied conditions
set by the seller.

Two types of Merchandising Discounts

Trade Discounts
Cash Discounts (part of the TERMS)
List Price vs Invoice Price
List Price
Suppliers’ suggested retail prices for their
products included in their price lists and
catalogs
Sometimes called Tag Price
Invoice Price
amount indicated in the Sales Invoice
amount entered in the accounting process as
SALES or PURCHASES
TRADE DISCOUNTS
Deductions from the List Price to enable the
customer to determine the invoice price to
be paid
encourage the buyers to purchase products
because of markdowns from the list price.
invoice price = list price minus trade
discount

NOTE: There is no trade discount account

and there is no special account entry for
this discount.
Illustration. Pinnacle Technology quoted a list price
of P2,500 for each 64 gigabyte flash drive, less a
trade discount of 20%. If Video Fantastic Company
ordered seven units, the invoice price would be as
follows:

List Price (P2,500 * 7) P 17,500

Less: Trade Discount (20%) 3,500
Invoice Price P 14,000
PINNACLE TECHNOLOGY (SELLER)
Cash / Accounts Receivable P 14,000
Sales P 14,000

VIDEO FANTASTIC COMPANY (BUYER)

Purchases P 14,000
Cash / Accounts Payable P 14,000
Trade discounts may be stated in a series.
Assume instead that the trade discount
given by Pinnacle to Video Fantastic is 20%
and 10%, the invoice price will be:
List Price (P2,500 * 7) P
17,500
Less: 1ST Trade Discount (20%)
3,500
Balance P
14,000
Less: 2nd Trade Discount (10%)
1,400
Invoice Price P 12,600
CASH DISCOUNTS (part of
TERMS)
discounts given by sellers for prompt
payment
improves the seller’s cash position by
reducing the amount of money in accounts
receivable
If a trade discount is also offered,
cash discount is computed on the net
amount after the trade discount.
CASH DISCOUNTS
“2/10”
two percent discount if paid within ten days
from the invoice date.
discount period
period covered by the discount,
above EX - 10 days

2/10, 1/15, n/30

Two percent discount if within 10 days, 1%
discount between the 11th and 15th day from
the invoice date
CASH DISCOUNTS
PURCHASES DISCOUNTS from
the buyer’s viewpoint
SALES DISCOUNTS from the
seller’s point of view.
ILLUSTRATION (Page 7)
On May 7, 2011, TM Trading Co sold merchandise
with a P150,000 list price
Trade Discount Credit Terms Date
Paid
Mr. White 25% 2/10, n/30 May 14
Ms. Tan 20%, 10%, 5% 1/10, n/10 eom May 20
MGM Inc. - 2/10,1/15, n/30 May 21
Required:
For each of the sales terms, determine the
following:
1. the amount recorded as sale
2. the amount of cash received
On May 7, 2011, TM Trading Co sold merchandise with a
P150,000 list price
CUSTOMER: MR. WHITE
Trade Discount Credit Terms Date
Paid
25% 2/10, n/30 May 14
List Price P 150,000
Less: Trade Discount (25%) 37,500
Invoice Price P 112,500
Less: Cash Discount (2%) 2,250
Cash Receipts P 110,250
May 7 Accounts Receivable P 112,500
Sales P 112,500
To record sales 2/10, n/30
14 Cash 110,250
Sales Discounts 2,250
Accounts Receivable
112,500
To record collection
 On May 7, 2011, TM Trading Co sold merchandise
with a P150,000 list price
CUSTOMER: MS. TAN
Trade Discount Credit Terms Date Paid
b. 20%, 10%, 5% 1/10, n/10 eom May 20
List Price P 150,000
Less: 1ST Trade Discount (20%) 30,000
Balance P 120,000
Less: 2nd Trade Discount (10%) 12,000
Balance P 108,000
Less: 3rd Trade Discount (5%) 5,400
Invoice Price P 102,600
Less: Cash Discount (0%) 0
Cash Receipts P 102,600

NOTE: Proper Solution Format for Chapter

7 Problem 1
 On May 7, 2011, TM Trading Co sold merchandise
with a P150,000 list price
CUSTOMER: MGM INC.
Trade Discount Credit Terms Date Paid
c. - 2/10,1/15, n/30 May 21
List Price P 150,000
Less: Trade Discount (0%) 0
Invoice Price P 150,000
Less: Cash Discount (1%) 1,500
Cash Receipts P 148,500

May 7 Purchases P 150,000

Accounts Payable P 150,000
To record purchases
21 Accounts Payable 150,000
Purchases Discounts
1,500
Cash 148,500
To record payment
RETURNS & ALLOWANCES
 Returns
 Customers dissatisfied with
merchandise and are allowed to return
the goods to the seller for credit or a
refund.
 Allowances
 Result when customers are dissatisfied
and the seller allows a deduction from
the selling price.

PURCHASES RETURNS AND ALLOWANCES

from the buyer’s viewpoint and SALES
RETURNS AND ALLOWANCES from the
seller’s point of view.
RETURNS & ALLOWANCES
 A purchaser may be dissatisfied with
merchandise received because the
goods:
1) are damaged or defective,
2) of inferior quality, or
3) not in accord with the
purchaser’s
specifications.
PURCHASES RETURNS &
ALLOWANCES
 Buyer’s viewpoint
 debit memorandum
a document issued by a buyer to
inform a seller that the seller’s
account has been debited because of
unsatisfactory merchandise.
Purchases Returns and Allowances
Contra purchases account
The normal balance of Purchases
Returns and Allowances is a credit
SALES RETURNS &
ALLOWANCES
 seller’s point of view
Credit memorandum
the seller prepares a form to inform the
customer that a credit has been made to
the customer’s account receivable
Sales Returns and Allowances
Contra revenue account to the Sales
account
The normal balance of Sales Returns
and Allowances is a debit
TRANSPORTATION COSTS
Merchandise is shipped by a common
carrier – a trucking company or an
airline – the carrier prepares a freight bill
in accordance with the instructions of the
party making the shipping arrangements.

TRANSPORTATION IN/FREIGHT IN from the

buyer’s viewpoint
TRANSPORTATION OUT/FREIGHT OUT from
the seller’s point of view.
ILLUSTRATION (Page 14)
On October 15, 2013, the M. Mendoza Book
Distributors acquired for resale books on account
with a list price of P125,000. Fuentes Publishing,
the supplier, allowed a 10% trade discount as
well as credit terms of 2/10, n/30. On October
17, 2013, Fuentes Publishing grant M. Mendoza a
credit allowance of P5,000 because some books
were damage during the delivery. M. Mendoza
paid the invoice in full on October 20, 2013.
Required: Prepare the journal entries for
Mendoza Book Distributors and Fuentes
Publishing.
 MENDOZA BOOK DISTRIBUTORS: GENERAL
JOURNAL List Price
Oct 15 Purchases P 112,500
Accounts Payable P
P 125,000
112,500 Less: TD (10%)
To record purchases from Fuentes 12,500
Publishing 2/10, n/30 Invoice Price P
17 Accounts Payable 5,000 112,500
Purchases Returns & Allowances Less: Returns
5,000 5,000
To record return of merchandise to
Balance P
Fuentes Publishing
20 Accounts Payable 107,500
107,500
Cash Less: CD (2%)
FUENTES
105,350 PUBLISHING: GENERAL JOURNAL 2,150
Oct 15 Accounts Receivable
Purchases Discounts P 112,500 Cash Payment P
2,150Sales P 112,500 105,350
To
Torecord
recordsales to Mendoza
payment Book
to Fuentes
Publishing Distributors 2/10, n/30
17 Sales Returns & Allowances 5,000
Accounts Receivable
5,000
To record return of merchandise from
Mendoza Book Distributors
20 Cash 105,350
Sales Discounts 2,150
Accounts Receivable
BADGER SUPPLIES
UNLIMITED
QUIZ JOURNAL ENTRIES
 BADGER SUPPLIES UNLIMITED
Badger Supplies Unlimited completed the
following merchandising transactions in the
month of Mar 2013:
2 Purchased merchandise from Anecdote
Wholesalers,
P12,500, terms 3/10, n/30.
5 Sold merchandise to Courtney Company, P
25,800, terms 2/10, n/30.
7 Received credit from Anecdote Wholesalers
for merchandise returned, P 500.
8 Paid freight on March 7 purchases, P 250.
9 Paid Anecdote Wholesalers in full.
 BADGER SUPPLIES UNLIMITED
10 Merchandise returned from Courtney
Company, P 2,300.
11 Purchased supplies for cash, P 2,600.

11 Purchased merchandise for cash, P10,000.

13 Purchased merchandise from Stark Inc., P
12,200, terms 3/10, 1/15, n/30.

13 Received collections in full, from Courtney

Company.
14 Received refund for poor quality merchandise
on cash purchase, P 400.
 BADGER SUPPLIES UNLIMITED
16 Sold merchandise to BMX Distributors, P
15,000, terms 2/10, n/30.
16 Paid freight on sold goods to BMX distributor, P
300.

19 Returned merchandise on March 13 purchase,

P 1,200.
22 Sold merchandise for cash, P 11,700.
24 Received payment from BMX Distributors.

28 Made refunds to cash customers for defective

merchandise, P450.
31 Paid the account with Stark Inc.
 BADGER SUPPLIES UNLIMITED
Mar 2 Purchased merchandise from Anecdote
Wholesalers,
P12,500 (P15,200), terms 3/10, n/30.
Purchases P 12,500 (15,200)
Accounts Payable P 12,500 (15,200)
To record purchase from Anecdote Wholesalers
3/10, n/30

5 Sold merchandise to Courtney Company, P

25,800 (21,500), terms 2/10, n/30.
Accounts Receivable 25,800 (21,500)
Sales 25,800 (21,500)
To record sales to Courtney Company 2/10 n/30
 BADGER SUPPLIES UNLIMITED
Mar 7 Received credit from Anecdote Wholesalers
for merchandise returned, P 500 (1,200).
Accounts Payable 500 (1,200)
Purchases Returns & Allowances 500
(1,200)
To record return to Anecdote Wholesalers

8 Paid freight on March 7 purchases, P 250

(700).
Freight In 250 (700)
Cash 250 (700)
To record payment
 BADGER SUPPLIES UNLIMITED
Mar 9 Paid Anecdote Wholesalers in full.
Accounts Payable 12,000 (14,000)
Cash 11,640 (13,580)
Purchases Discounts 360
(420)
To record return to Anecdote Wholesalers

10 Merchandise returned from Courtney

Company, P 2,300 (1,500).
Sales Returns & Allowances 2,300 (1,500)

Accounts Receivable 2,300

(1,500) To record return from Courtney Company
BADGER SUPPLIES UNLIMITED
Mar 11 Purchased supplies for cash, P 2,600
(2,130).
Supplies 2,600 (2,130)
Cash 2,600 (2,130)
To record purchase

11 Purchased merchandise for cash, P

10,000 (12,000).
Purchases 10,000 (12,000)
Cash 10,000 (12,000)
To record purchase
 BADGER SUPPLIES UNLIMITED
Mar 13 Purchased merchandise from Stark Inc., P
12,200 (14,600), terms 3/10, 1/15, n/30.
Purchases 12,200 (14,600)
Accounts Payable 12,200 (14,600)
To record purchase from Stark Inc 3/10, 1/15, n/30

13 Received collections in full, from Courtney

Company.
Cash 23,030 (19,600)
Sales Discounts 470 (400)
Accounts Receivable 23,500
(20,000)
To record collection from Courtney Co
 BADGER SUPPLIES UNLIMITED
Mar 14 Received refund for poor quality
merchandise on cash purchase, P 400 (680).
Cash 400 (680)
Purchase Returns & Allowances 400
(680)
To record payment

16 Sold merchandise to BMX Distributors, P 15,000

(8,000), terms 2/10, n/30.
Accounts Receivable 15,000 (8,000)
Sales 15,000 (8,000)
To record sales to BMX Distributors 2/10 n/30
 BADGER SUPPLIES UNLIMITED
Mar 16 Paid freight on sold goods to BMX
Distributors, P 300 (700).
Freight Out 300 (700)
Cash 300 (700)
To record payment

19 Returned merchandise on Mar 13 purchase, P

1,200 (1,600).
Accounts Payable 1,200 (1,600)
Purchases Returns & Allowances
1,200 (1,600)
To record return to Stark Inc
 BADGER SUPPLIES UNLIMITED
Mar 22 Sold merchandise for cash, P11,700
(17,100)
Cash 11,700 (17,100)
Sales 11,700 (17,100)
To record sales

24 Received payment from BMX Distributors.

Cash 14,700 (7,840)
Sales Discounts 300 (160)
Accounts Receivable 15,000
(8,000)
To record collection from BMX Distributors
 BADGER SUPPLIES UNLIMITED
Mar 28 Made refunds to cash customers for defective
merchandise, P 450 (920).
Sales Returns & Allowances 450 (920)
Cash 450 (920)
To record return from customers (refund to
customers)

31 Paid the account with Stark Inc.

Accounts Payable 11,000 (13,000) 10,600
Cash 11,000 (13,000) 10,600

To record payment to Stark Inc,

End…
ACTIVITIES
ANSWER ACTIVITY 1-4
 SALES TRANSACTIONS

Revenues – (Revenue recognition

principle)
Earned when the goods are
transferred from seller to buyer

 All sales should be supported by a document

such as a cash register tape or sales invoice.
RECORDING CASH SALES

GENERAL JOURNAL
Date Account Titles and Explanation Dr. Cr.
May 4 Cash
Sales 2,200
(To record daily cash sales)
2,200
4 Cost of Goods Sold
Merchandise Inventory
(To record cost of merchandise 1,400
sold for cash)
1,400

 For cash sales, Cash is debited and Sales is credited.

 For the cost of goods sold for cash, Cost of Goods
Sold is debited and Merchandise
Inventory is credited.
 RECORDING CREDIT
SALES
GENERAL JOURNAL
Date Account Titles and Explanation Dr. Cr.
May 4 Accounts Receivable
Sales
3,800
(To record credit sales to Beyer
Video per invoice #731)
3,800
4 Cost of Goods Sold
Merchandise Inventory
(To record cost of merchandise
sold on invoice #731 to Beyer 2,400
Video)
2,400

 For credit sales, Accounts Receivable is debited and Sales is credited.

 For the cost of goods sold on account, Cost of Goods Sold is debited
and Merchandise Inventory is credited.
 SALES RETURNS AND ALLOWANCES

 Sales Returns
 Customers dissatisfied with
merchandise and are allowed to
return the goods to the seller for
credit or a refund.
 Sales Allowances
 Result when customers are
dissatisfied and the seller allows a
deduction from the selling price.
SALES RETURNS AND ALLOWANCES
 RECORDING SALES RETURNS
AND ALLOWANCES
GENERAL JOURNAL
Date Account Titles and Explanation Dr. Cr.
May 8 Sales Returns and Allowances
Accounts Receivable
(To record return of inoperable
goods delivered to Beyer Video,
per credit memorandum)

300
8 Merchandise Inventory
Cost of Goods Sold
(To record cost of goods returned
per credit memorandum)

300

140

140

The seller’s entry to record a credit memorandum involves a debit to the

Sales Returns and Allowances account and a credit to Accounts
Receivable. The entry to record the cost of the returned goods involves
a debit to Merchandise Inventory and a credit to Cost Goods Sold.
 SALES DISCOUNTS

Sales discount
Offer of a cash discount to a customer
for the prompt payment of a balance
due
Is a contra revenue account with a
normal debit balance
Example: A credit sale has the terms
3/10, n/30, a 3% discount is allowed if
payment is made within 10 days. After
10 days there is no discount, and the
balance is due in 30 days.
 CREDIT
CREDIT TERMS
TERMS

Credit terms specify the amount

and time period for the
cash discount
 Indicates the length of time in which
the purchaser is expected to pay the
full invoice price
T E R M S E X P L A N A T I O N

/10, n/30 A 2% discount may be taken if payment is made

within 10 days of the invoice date.

/10 EOM A 1% discount is available if payment is made

by the 10th of the next month.
 RECORDING
SALES DISCOUNTS

GENERAL JOURNAL
Date Account Titles and Explanation Dr. Cr.
May 14 Cash 3,430
Sales Discounts
70
Accounts Receivable
(To record collection within 2/10,
n/30 discount period from Beyer 3,500
Video)

When cash discounts are taken by

customers, the seller debits Sales Discounts.
PURCHASE RETURNS AND ALLOWANCES
 A purchaser may be dissatisfied with
merchandise received because the goods:
1) are damaged or defective,
2) of inferior quality, or
3) not in accord with the purchaser’s
specifications.
 The purchaser initiates the request for a
reduction of the balance due through the
issuance of a debit memorandum
(purchaser’s debit decreases A/P!).
 The debit memorandum is a document
issued by a buyer to inform a seller that
the seller’s account has been debited
SOURCE DOCUMENTS
 Sales Invoice
 Bill of lading
 Statement of Account
 Official Receipts
 Deposit slips
 Check
 Purchase Requisitions
 Purchase order
 Receiving report.
 Debit Memorandum
 Credit Memorandum