1. Chapter 10: Accounting for Merchandising Operations
Unit 4
Chapter 10: Accounting for Merchandising Operations
Thursday : Summative review
Friday : Summative review
Monday : Summative
Let’s vote about summative date.
Remember the HW rule:
1% bonus mark
Formula Sheet

2. Cash Refunds Cash Refunds
There is one term that I did not mention from yesterday’s
lesson.
Cash Refunds
Sometimes cash sale is as common as credit sale.
A customer who paid cash at the purchase date, might want to return the goods and get cash refund.
In principle, accounting for refunds is similar to that for credit invoices.
However when a refund is given instead of issuing credit invoice, we will now issue check or give cash back to the customer.
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 2

3. Revised Cost of Goods sold
Remember from previous lesson that COGS
COGS =BI + Purchase – EI
COGS = BI + Net Purchase – EI
BI = Beginning Inventory
EI = Ending Inventory
COGS = Cost of Goods sold
Net Purchase = Purchase account – Purchase Returns and allowance account
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 3

4. Sales Discounts
Cash discounts is a reduction of the amount of an invoice if payment is made on or before the discount date, (which is stated on the invoice.)
Terms of Sale
Talk about a meeting Samsung and Bestbuy
Every businesses arranges with their customers as to
when the goods of service are to be paid for
Whether a cash discount is offered.
This arrangement is called “Terms of Sale”.
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 4

5. Terms of Sale Common Examples of Terms of Sale in business are:
COD = Cash on Delivery
Net 30
Net 60
2/10, n/30
1/15, n/30
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 5

6. Terms of Sale Common Examples of Terms of Sale in business are:
COD = Cash on Delivery : The goods must be paid for at the time they are delivered. This is the most common example of Terms of Sale. COD is common in retail business such as Tim Horton, Dollarama and Wal-mart.
Net 30 : The full amount of the invoice is due 30 days after the date of the invoice.
Net 60 : The full amount of the invoice is due 60 days after the date of the invoice. Sixty day terms are becoming less common.
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 6

7. Terms of Sale Common Examples of Terms of Sale in business are:
2/10, n/30 = Two ten net thirty = If the bill is paid within 10 days of the invoice date, a cash discount of 2% is taken. Otherwise, the full amount of the invoice is due 30 days after the invoice date. (most common practice in business)
1/15, n/30 = One fifteen net thirty = If the bill is paid within 15 days of the invoice date, a cash discount of 1% is taken. Otherwise, the full amount of the invoice is due 30 days after the invoice date.
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 7

8. Sales Discounts
Which one of the 5 terms of sale is the most favorable for the seller? (=vendor)
COD
Which one of the 5 terms of sale is the most favorable for the purchaser? (or buyer)
Net 60 and 2/10, n/30
The terms of sale depend on the customer’s reputation for reliability in paying.
A reliable customer of long standing will probably be granted very favorable terms.
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 8

9. When the seller makes sales invoice, they always remind the buyer about the terms in its sales invoice. Page 428 shows an example.
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 9

10. Accounting for Cash Discounts
Accounting for cash discounts begins when the credit sale is made.
In the books of the buyer
On Feb 1, Bestbuy (retail store) bought USBs worth $ HST = $ with “2/10, n/30” term:
Dr. Cr.
Purchases $411.90
HST Recoverable $53.55
Accounts Payable
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 10

11. Accounting for Cash Discounts
2% = 0.02 * = 8.24
If the buyer pays in 10 days, (on Feb 8) then the accounting entry would be:
Feb 8 Dr. Cr.
Accounts Payable
Purchase Discounts
Bank
Paid Invoice #1235 with 2% discount
***Purchase Discounts = Discounts earned
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 11

12. Accounting for Cash Discounts
In the books of the seller (Kingston, manufacturer)
When they sold the USBs on Feb 1:
Dr. Cr.
Accounts Receivable
Sales
HST Payable
As the accounting clerk receives the check, they make sure that the payment has been received within 10 days.
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 12

13. Accounting for Cash Discounts
In the books of the seller (Kingston, manufacturer)
On Feb 8, when they received the check with discount amount:
Dr. Cr.
Bank
Sales discounts
Accounts Receivable
*** Sales Discounts = “Discounts allowed” account
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 13

14. Less: Return and Allowances 21151 Sales Discounts (5296) 26447
Revenue (P431)
Sales
Less: Return and Allowances 21151
Sales Discounts (5296)
Net Sales
Cost of Goods sold
Inventory Jan
Purchases
Less: Returns and allowance (18356)
Purchase Discounts (4358)
Net Purchases
Freight In
Cost of goods available for sale
Less Inventory,December
COGS
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 14

15. Classwork / Homework for Monday class
P432 Ex 1, 2, 3 and 4
Quantity – also called bulk purchasing
If you, as a company, sell a bulk order where you offer a 10% discount on something, you don’t record or account for these discounts separately, you just record the revenue generated by the changed price of the item.
Purchase – noted on invoice by credit terms specifying amount and time period for the discount
Means a 1% cash discount may be taken on the invoice price if payment is made within 10days of the invoice date, otherwise the invoice price is due 30 days from the invoice date
If they don’t offer something it will just say n/60 or something (or EOM-end of month)
These are recorded separately. We don’t do this very often in Canada so we aren’t going to worry about this in terms of putting it in our accounting sheets 15