Task Team of FUNDAMENTAL ACCOUNTING School of Business Sun Yat-sen University Good cash management requires that no invoice be paid until the last day of its discount period This is because money has a time value and interest can be earned on cash before it is used to pay bills. Invoices should be filed by due dates to avoid missing a discount Transportation costs Transportation costs(often called transportation-in or freight-in) are added to the cost of Merchandise inventory. Goods may be shipped FOB destination or FOB shipping point. FOB means free on board. It is the point that determines when legal title passes and realization of revenue occurs. When goods are in transit between a seller and a buyer, either party can hold title depending on the terms of the sale Y For FOB destination, the seller pays for transportation. While the goods are in transit they still belong to the seller, and ownership rights are transferred upon arrival at the buyer's premises Y For FOB shipping point(also called FOB factory ) the buyer pays the freight and records the shipping cost as part of Merchandise inventory. Goods are loaded on board the means of transportation at the factory free of charge, and the transfer of ownership occurs when the good leave the seller's premises Revenue from sales and cost of goods sold- Perpetual inventory system For a business engaged in a merchandising activity, revenue takes the form of sales. Gross les revenue from cash and credit sales is recorded when earned, which is usually when title to the goods changes hands. This occurs when the goods are physically transferred from the seller to the buyer. The entry to record the sale of merchandise on credit under a perpetual inventory system requires two entries, as follows Accounts receivable XXX Sales Cost of goods sold XXX Merchandise inventory Recall that under the perpetual inventory system, any events affecting the cost of goods sold or merchandise inventory are recorded immediately Sales returns and allowances Many businesses allow customers to return merchandise (sales return)or to kee merchandise and deduct an amount from the sales price(sales allowance). A sales allowance is usually given on merchandise due to minor defects, breakages, spoilage, inferior quality, or shortages in shipments, for example. In both cases, the original sale is negated - that is, an entry is made to reverse all or part of the sale. For a sales return, the total amount is debited, whereas for a sales allowance. a lesser amount is debitedTask Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University 4 Good cash management requires that no invoice be paid until the last day of its discount period. This is because money has a time value and interest can be earned on cash before it is used to pay bills. Invoices should be filed by due dates to avoid missing a discount. Transportation costs Transportation costs (often called transportation-in or freight-in) are added to the cost of Merchandise inventory. Goods may be shipped FOB destination or FOB shipping point. FOB means free on board. It is the point that determines when legal title passes and realization of revenue occurs. When goods are in transit between a seller and a buyer, either party can hold title, depending on the terms of the sale. For FOB destination, the seller pays for transportation. While the goods are in transit they still belong to the seller, and ownership rights are transferred upon arrival at the buyer’s premises. For FOB shipping point (also called FOB factory), the buyer pays the freight and records the shipping cost as part of Merchandise inventory. Goods are loaded on board the means of transportation at the factory free of charge, and the transfer of ownership occurs when the goods leave the seller’s premises. Revenue from sales and cost of goods sold— Perpetual inventory system Sales For a business engaged in a merchandising activity, revenue takes the form of sales. Gross sales revenue from cash and credit sales is recorded when earned, which is usually when title to the goods changes hands. This occurs when the goods are physically transferred from the seller to the buyer. The entry to record the sale of merchandise on credit under a perpetual inventory system requires two entries, as follows: Accounts receivable XXX Sales XXX Cost of goods sold XXX Merchandise inventory XXX Recall that under the perpetual inventory system, any events affecting the cost of goods sold or merchandise inventory are recorded immediately. Sales returns and allowances Many businesses allow customers to return merchandise (sales return) or to keep the merchandise and deduct an amount from the sales price (sales allowance). A sales allowance is usually given on merchandise due to minor defects, breakages, spoilage, inferior quality, or shortages in shipments, for example. In both cases, the original sale is negated — that is, an entry is made to reverse all or part of the sale. For a sales return, the total amount is debited, whereas for a sales allowance, a lesser amount is debited