3. Perpetual Purchasing Inventory and Sale of Inventory

Entry to record paying for merchandise within the discount period (perpetual inventory system)

Debit Accounts Payable for full amount before discount, Credit Inventory for amount of discount, Credit Cash for actual amount of cash paid (amount - discount).

Buyer returns merchandise to seller (perpetual system)

ebit Accounts Payable, Credit Inventory for amount returned.

Seller receives payment from buyer within discount period (perpetual inventory)

Debit Sales discounts for amount of discount, Debit Cash for Amount after discount, Credit Accounts receivable for full amount.

Seller receives a return of merchandise from the buyer (perpetual)

• Involves two entries

1. Debit Sales Returns and Allowances for amount it cost the buyer (not cogs), Credit Accounts receivable for same amount.

2. Debit Inventory for COGS amount, Credit COGS for same amount.

Seller grants a sales allowance to buyer (such as for damaged goods, perpetual

Debit Sales Returns and Allowances for amount of allowance, Credit Accounts Receivable for same amount.

Adjusting entry at end of reporting period to recognize additional future returns expected to occur as as result of the current period's sales transactions (perpetual)

Needs two entries:

1. Debit Sales Returns and Allowances for amount expected to be returned

• If it was a cash sale: Credit Refund liability for same amount

• If it was a credit sale: Credit Allowances for Sales Return for same amount.

2. Debit Inventory - Estimated Returns and Credit COGS for the estimated amount expected to be returned (COGS inventory amount)

Seller receives a sales return after estimating amount of sales returns expected (perpetual)

• Requires two entries:

If cash: Debit refund liability for amount of sales returns and credit Cash

If credit: Debit Allowance for Sales returns for amount of sales returns and credit Accounts receivable

2. Debit Inventory and Credit Inventory - estimated returns for COGS

Entry to record purchase of merchandise with transportation costs (FOB shipping point, perpetual)

1. Debit Inventory for amount of inventory bought, Credit Accounts Payable for same amount.

2. Debit Inventory for cost of transportation, Credit Cash for same amount. (Note transportation costs are usually paid in cash).

Entry for seller if the seller prepays for transportation costs as a convenience to the buyer when selling goods (FOB shipping point, perpetual)

• In addition to the regular journal entries for sale of merchandise (record sales revenue and COGS), the seller would have an extra journal entry:

Debit Accounts Receivable for amount of transportation cost, Credit Cash for transportation cost

Entry for FOB destination where seller pays transportation costs (perpetual)

• Include usual entries for sale of merchandise (2 entries to record sales revenue and COGS).

• Debit Transportation Out for transportation cost, Credit Cash for same amount.
  
  Transportation Out can also be called Freight-out or Delivery expense.