Part 3: Merchandising

Perceptual Inventory System

Inventory updated continuously.

Any cost required to get inventory is added to inventory account.

Any purchase returns, allowances, or discounts are subtracted from inventory account.

FOB Shipping Point

Ownership transfers when shipped, buyer pays

FOB Destination

Ownership transfers at destination, seller pays

Inventory Purchase entries

Inventory

• Accounts Payable

Freight Costs entries

Inventory

• Accounts payable

Purchase return entries

Accounts Payable

• Inventory

Purchase Discount Entries

Accounts Payable

• Cash

• Inventory

Inventory Sale (2 journal entries requires)

1. Record revenue

Accounts Receivable

• Sales revenue

• Refund Liabilities

2. Record COGS as expense

COGS

Estimated inventory returns

• Inventory

Refund Liability

Liability

Obligation to refund customers for expected returns

Estimated Inventory Returns

Asset

Value of goods expected to be returned and resold

Sales Return entries

1. Refund

Refund Liability

Accounts receivable

2. Inventory

Inventory

Estimated Inventory Returns

2.5 If merchandise returned is not restored to inventory

COGS

Estimated Inventory Returns

After the return period ends

1. Close to Sales revenue

Refund Liability

• Sales Revenue

2. Closed to COGS

COGS

• Estimated Inventory Returns

Lower of Cost & Net Realizable Value, when to adjust

When NRV < Cost

COGS

• Inventory