Accounting for Merchandising Operations - Purchases under Perpetual Inventory

Recording Merchandise Purchases in a Perpetual Inventory System

• When purchasing merchandise for resale, costs are recorded when goods are received.

• Journal entry: Debit $Merchandise Inventory$ and credit $Accounts Payable$ (for credit purchases) or $Cash$ (for cash purchases).

• A subsidiary ledger provides a group of accounts for individual inventory items, as well as accounts receivable, accounts payable, and payroll.

Freight Costs and Ownership Transfer

• FOB Shipping Point: Ownership transfers at the place of shipping. The purchaser pays shipping costs and debits $Merchandise Inventory$.

• FOB Destination: Ownership transfers upon delivery to the purchaser's business. The seller pays freight and debits $Delivery Expense$.

Purchase Returns, Allowances, and Discounts

• Returns and Allowances: For damaged, defective, or inferior goods, the purchaser debits $Cash$ or $Accounts Payable$ and credits $Merchandise Inventory$.

• Quantity Discount: A price reduction based on the volume of items purchased.

• Purchase Discount: A price reduction for early payment of an invoice.

• Record payment with a purchase discount: Debit $Accounts Payable$ (full amount), credit $Merchandise Inventory$ (discount amount), and credit $Cash$ (net amount paid).