Explanation Perpetual inventory system: The method or system of maintaining, recording, and adjusting the inventory perpetually throughout the year, is referred to as perpetual inventory system. Net method: Under net method, sales and purchases of merchandises are recorded at the net invoice price which means the discounts are deducted from the gross invoice price. Prepare journal entries to record the purchases. Date Account title and Explanation Post ref. Amount Debit Credit November 05 Merchandise Inventory (1) $5,880 Accounts payable $5,880 (To record the purchase of 600 units of products at $10 on account, credit terms of 2 / 10 , n / 60 ) November 07 Accounts payable (2) $245 Merchandise Inventory $245 (To record the returns of defective units) November 15 Accounts payable $5,635 Cash (3) $5,635 (To record the payment for merchandises within the discount period) Table (1) November 05: To record the 600 units of products purchased at $10 on account, credit terms of 2 / 10 , n / 60 : Merchandise Inventory is an asset and the value is increased due to the credit purchases on account. Therefore, debit Merchandise Inventory account with $5,880. Accounts Payable is a liability and it is increased due to the increase in the amount to be paid for purchases. Therefore, credit Accounts Payable account with $5,880. November 07: To record the returns of defective units: Accounts Payable is a liability and is decreased due to the return of defective merchandise inventory. Therefore, debit Accounts Payable account with $245. Merchandise Inventory is an asset and is reduced due to credit purchase returns. Therefore, credit the Merchandise Inventory account with $245. November 15: To record the payment for merchandises within the discount period: Accounts Payable is a liability and is decreased because the company has paid the amount for the credit purchases. Therefore, debit Accounts Payable account with $5,635. Cash is an asset and it is reduced because amount is paid for credit purchases

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ISBN: 9781260005042

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Publisher: MCG

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…

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Ch. 4 - Prob. 1MCQ Ch. 4 - Prob. 2MCQ Ch. 4 - Prob. 3MCQ Ch. 4 - Prob. 4MCQ Ch. 4 - Prob. 5MCQ Ch. 4 - Prob. 1DQ Ch. 4 - Prob. 2DQ Ch. 4 - Prob. 3DQ Ch. 4 - Prob. 4DQ Ch. 4 - Prob. 5DQ

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Chapter 6 Merchandise Inventory; Author: Vicki Stewart;https://www.youtube.com/watch?v=DnrcQLD2yKU;License: Standard YouTube License, CC-BY

Accounting for Merchandising Operations Recording Purchases of Merchandise; Author: Socrat Ghadban;https://www.youtube.com/watch?v=iQp5UoYpG20;License: Standard Youtube License