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Periodic
Perpetual
2 Types of inventory system
Periodic inventory system
An inventory system in which merchandise inventory balance is updated when a physical inventory is taken, normally at end of the period
Periodic inventory system
Low-cost items; High volume of transactions
Perpetual inventory system
An inventory system in which merchandise inventory balance is updated perpetually
Perpetual inventory system
Expensive items; Low volume of transactions
Merchandise Inventory
Goods on hand at end of the period
Current Asset
Classification of Merchandise Inventory
Purchases
Purchase of goods for sale
Cost of Sales
Classification of Purchases
Freight In
Delivery of goods purchased assumed by the buyer
Cost of Sales
Classification of Freight In
Purchase Returns
Return of goods due to damage, low quality, or wrong specifications
Contra-Purchases
Classification of Purchase Returns
Purchase Allowances
Reduction in the original price charged by supplier due to damage, low quality, or wrong specifications
Contra-Purchases
Classification of Purchase Allowances
Purchase Discount
A cash discount offered by supplier for payment within the specified discount period
Contra-Purchases
Classification of Purchase Discount
Sales
Sale of goods
Revenue
Classification of Sales
Freight Out
Delivery of goods sold assumed by the seller
Expense
Classification of Freight Out
Sales Returns
Return of goods by customers due to damage, low quality, or wrong specifications
Contra-Sales
Classification of Sales Returns
Sales Allowances
Reduction in the original price charged to customers due to damage, low quality, or wrong specifications
Contra-Sales
Classification of Sales Allowances
Sales Discount
A cash discount offered to customers for payment within the specified discount period
Sales Discount
designed to encourage customers to pay their accounts promptly
Contra-Sales
Classification of Sales Discount
Trade discounts
Discounts for bulk purchases
Trade discounts
deducted from list price to determine invoice price
Trade discounts
not reflected in the books
Cash discounts
Discounts for early payment of account
Cash discounts
deducted from invoice price
Free on Board
determines the ownership of the goods while in transit and the party who is responsible for the freight and other expenses from the Point of Shipment to the Point of Destination
FOB Destination Point
title transferred to the buyer when the goods are delivered to the destination point
FOB Selling Point
title transferred to the buyer as soon as the goods are shipped
Freight term
determines the party who actually paid the freight and other expenses from the Point of Shipment to the Point of Destination
Freight Prepaid
Seller actually pays for the freight
Freight Collect
Buyer actually pays for the freight.
Freight In, Cash
Buyer | FOB SP Collect
Freight In, Accounts Payable
Buyer | FOB SP Prepaid
Accounts Payable, Cash
Buyer | FOB DP Collect
no entry
Buyer | FOB DP Prepaid
no entry
Seller | FOB SP Collect
Accounts Receivable, Cash
Seller | FOB SP Prepaid
Freight Out, Accounts Receivable
Seller | FOB DP Collect
Freight Out, Cash
Seller | FOB DP Prepaid
Wholesaler
a firm which typically sells goods to another firm
Retailer
sells goods to the final customer
Periodic inventory system
ending inventory is accounted for at the end of the accounting period
Perpetual inventory system
inventory is accounted for continuously during the accounting period
Free on board term
determines the ownership of the goods while in transit and the party who is responsible for the freight and other expenses from the point of shipment to the point of destination
Freight term
determines the party who actually pays the freight and other expenses from the Point of Shipment to the Point of Destination
Physical count
required for monitoring and internal control purposes regardless of the method used
Note 
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