Lesson 027 - Accounting for Merchandising Operations 1: Sales and Purchases
Summary
TLDRThis video from Search was Accounting Lessons PH delves into the intricacies of accounting for merchandising operations. It explains the concept of inventory as a current asset, the operating cycle of a merchandising entity, and the importance of understanding gross invoice price, including trade and chain discounts. The lesson further explores sales transactions, including credit terms, sales returns, and allowances, providing examples of journal entries for various scenarios. It also covers purchase transactions, emphasizing the periodic inventory system and illustrating how to record purchases, returns, and discounts. The video concludes with a problem on computing net sales and purchases, offering practical insights into the accounting process for businesses dealing in goods.
Takeaways
- 😀 Merchandising operations involve buying and selling goods rather than providing services.
- 📦 Merchandise inventory, or simply inventory, is a company resource and is considered an asset, reported as a current asset on financial statements.
- 🔄 The operating cycle of a merchandising entity typically starts with cash, involves purchasing inventory, making sales (either for cash or on credit), and ends with collecting accounts receivable to regain cash.
- 📝 The gross invoice price in accounting for merchandising operations is recorded at the original list price before any trade discounts are applied.
- 💰 Trade discounts are deductions from the list price that encourage buyers to purchase more merchandise, but they do not affect the gross invoice price recorded.
- 🛒 Examples of merchandising operations include grocery stores, department stores, online retailers, and appliance centers.
- 📉 Sales returns and allowances are important aspects of merchandising; returns imply a cancellation of sale with a refund, while allowances are granted if the customer keeps the merchandise despite dissatisfaction.
- 📋 Sales transactions involve the transfer of legal ownership of goods from the seller to the buyer, and they are the main revenue-producing activity for merchandising operations.
- 📝 In sales transactions, terms of payment such as '2/10, net 30' are specified on the invoice, offering discounts for early payment and setting a deadline for the full amount.
- 🛍️ Purchase transactions, from the buyer's perspective, involve recording purchases and accounts payable, and may include purchase discounts and returns.
- 📊 To calculate net sales and net purchases, one must consider gross amounts, sales and purchase discounts, and returns and allowances, which are subtracted from the gross figures to arrive at net totals.
Q & A
What is the definition of merchandising operations?
-Merchandising operations refer to the business activity of buying and selling goods. It involves purchasing goods first to be sold in a retail store, rather than providing services.
What is the term used for the goods that a merchandising company sells to its customers?
-The goods that a merchandising company sells to its customers are called merchandise inventory or simply inventory.
How is inventory classified in financial statements?
-Inventory is classified as a current asset in financial statements because it is a company resource that is expected to be converted into cash within a short period.
What is the operating cycle of a merchandising entity?
-The operating cycle of a merchandising entity starts with cash, then to inventory from purchase transactions, followed by sales transactions, which may include accounts receivable, and finally, the collection of receivables leading back to cash.
What is the gross invoice price in the context of merchandising operations?
-The gross invoice price is the original price of the merchandise before any trade discounts are applied. It is the amount recorded in the books before considering any deductions that may encourage the buyer to purchase more.
How do you calculate the gross invoice price when given a list price and a trade discount?
-The gross invoice price is calculated by subtracting the trade discount from the list price or by multiplying the list price by the complement percentage of the trade discount (100% - trade discount percentage).
What is the significance of sales transactions in merchandising operations?
-Sales transactions are significant in merchandising operations as they represent the transfer of legal ownership of goods from the seller to the buyer, and they are the main revenue-producing activity for a merchandising business.
What are the terms of payment called when goods are sold on account?
-The terms of payment when goods are sold on account are called credit terms, which may include specific discount percentages and payment deadlines, such as '2/10 net 30'.
What are sales returns and allowances in the context of merchandising operations?
-Sales returns are merchandise returned to the seller, implying a cancellation of the sale, while sales allowances are granted to customers who keep the merchandise despite being unsatisfied with their purchase.
How are sales transactions recorded in the books when goods are sold on account and a customer pays within the discount period?
-When goods are sold on account and a customer pays within the discount period, the sales transaction is recorded with a debit to cash for the amount received minus the discount, a credit to sales discount for the discount amount, and a credit to accounts receivable for the original sales amount.
What is the difference between the periodic and perpetual inventory systems in recording purchases?
-In the periodic inventory system, inventory accounts are updated only periodically, usually at the end of an accounting period, whereas in the perpetual inventory system, inventory accounts are updated with each purchase and sale transaction.
How are purchase transactions recorded in the books when a company buys merchandise on credit?
-When a company buys merchandise on credit, the transaction is recorded with a debit to purchases for the amount of the purchase and a credit to accounts payable for the same amount, indicating the obligation to pay the seller in the future.
What is the process for recording purchase returns and allowances in the books?
-Purchase returns and allowances are recorded with a debit to cash for the amount of the refund and a credit to purchase returns and allowances, indicating the reduction in the purchase amount due to returned goods.
How are net sales and net purchases calculated for a merchandising company?
-Net sales are calculated by subtracting sales discounts and sales returns and allowances from gross sales. Net purchases are calculated by subtracting purchase discounts and purchase returns and allowances from gross purchases.
Outlines
🛒 Introduction to Merchandising Operations
This paragraph introduces the concept of merchandising operations, which involves buying and selling goods rather than offering services. The speaker explains that the goods sold by a merchandising company are referred to as merchandise inventory or simply inventory, which is considered a company asset and reported as a current asset in financial statements. Examples of merchandising operations include grocery stores, department stores, and online retail. The paragraph also outlines the operating cycle of a merchandising entity, starting with cash, leading to inventory purchases, sales, and eventually the collection of accounts receivable, thus completing the cycle with cash again.
📝 Understanding Gross Invoice Price in Merchandising
The speaker delves into the specifics of recording transactions in merchandising, emphasizing the importance of the gross invoice price. Merchandise is recorded at its list price before any trade discounts are applied. Trade discounts are incentives for buyers to purchase more goods, but they are not recorded in the books; only the gross invoice price, which is the list price minus any trade discounts, is recorded. The paragraph provides an example calculation for determining the gross invoice price after a trade discount, illustrating two methods for doing so and highlighting the importance of understanding these calculations for accurate accounting in merchandising operations.
🏬 Sales Transactions and Legal Ownership Transfer
This section discusses the nature of sales transactions in merchandising, where the legal ownership of goods is transferred from the seller to the buyer. The speaker explains that revenue is earned each time a sale is made, and this is the main revenue-producing activity for merchandising operations. The paragraph also covers sales made on credit, where terms of payment, known as credit terms, are specified on the invoice. These terms may include discounts for early payment and deadlines for the full payment. The speaker provides an example of how to calculate the cash discount when a customer pays within the discount period.
🔄 Sales Returns and Allowances in Merchandising
The speaker addresses the topic of sales returns and allowances, explaining that sales returns occur when merchandise is returned to the seller, resulting in a cancellation of the sale and a refund to the buyer. Sales allowances, on the other hand, are granted when the customer keeps the merchandise despite dissatisfaction. The paragraph provides an example of journal entries for sales transactions, including sales returns and allowances, using transactions from Lisa Merchandising as a case study. The example illustrates how to properly record sales revenue, accounts receivable, and cash refunds for returned merchandise.
🛍️ Recording Sales Transactions in Journal Entries
This paragraph provides a detailed walkthrough of how to record sales transactions in journal entries, using specific transactions from Lisa Merchandising as examples. The transactions include sales made on credit with terms of payment, sales returns, and the subsequent collection of accounts receivable with the application of a cash discount. The speaker explains the process of debiting and crediting accounts such as cash, sales revenue, accounts receivable, sales returns and allowances, and sales discounts, providing a clear understanding of the accounting treatment for sales transactions.
🛍️ Purchase Transactions and Their Recording
The focus shifts to purchase transactions from the buyer's perspective. The speaker explains that purchases are a necessary part of the merchandising process to acquire inventory for resale. The paragraph outlines the process of recording purchase transactions using the periodic system of inventory, which updates inventory accounts periodically rather than with each transaction. Examples of purchase transactions, including cash purchases, purchases on credit, purchase returns, and the application of cash discounts, are provided, illustrating the journal entries for each scenario.
📊 Computing Net Sales and Purchases for Financial Statements
The speaker introduces the computation of net sales and purchases, which are essential for preparing the income statement. The paragraph explains how to calculate net sales by starting with gross sales and subtracting sales discounts and sales returns and allowances. Similarly, net purchases are calculated by deducting purchase discounts and purchase returns and allowances from gross purchases. The example provided uses figures from Gab Company to demonstrate the computation process, resulting in the determination of net sales and net purchases, which are crucial for understanding the company's true sales and cost of goods sold.
🎓 Conclusion of Merchandising Operations Lesson
In the concluding paragraph, the speaker summarizes the lesson on merchandising operations and hints at the next topic to be covered, which involves transportation and the determination of ownership of goods when the buyer and seller are located in different places. The speaker thanks the audience for watching the accounting lesson and wishes them a great day, indicating the end of the current educational session.
Mindmap
Keywords
💡Merchandising Operations
💡Inventory
💡Gross Invoice Price
💡Trade Discounts
💡Sales Transaction
💡Credit Terms
💡Sales Returns and Allowances
💡Journal Entries
💡Purchase Transactions
💡Purchase Discounts and Returns
💡Net Sales and Purchases
Highlights
Introduction to accounting for merchandising operations, focusing on the business activity of buying and selling goods.
Explanation of merchandise inventory as a company resource and its classification as a current asset.
Examples of merchandising operations, including grocery stores, department stores, and online retail.
The operating cycle of a merchandising entity, starting with cash and ending with sales on account.
Understanding the concept of gross invoice price and its calculation in accounting for merchandising.
Illustration of how to calculate gross invoice price with examples, including trade and chain discounts.
Discussion on sales transactions, emphasizing the transfer of legal ownership from seller to buyer.
Clarification of sales revenue as the main revenue-producing activity in merchandising operations.
Explanation of credit terms in sales, such as '2/10, net 30', and their impact on cash flow.
Accounting for sales returns and allowances, including the cancellation of sales and refunds.
Journal entries for sales transactions, including cash sales and sales on credit with discounts.
Recording of purchase transactions from the buyer's perspective using the periodic inventory system.
Journal entries for purchase transactions, including cash purchases and purchases on credit.
Accounting for purchase returns and allowances, and their impact on inventory valuation.
Computing net sales and purchases for financial reporting, including adjustments for discounts and returns.
Upcoming lesson on transportation in merchandising, addressing ownership of goods during transit.
Conclusion and summary of key points in merchandising operations accounting.
Transcripts
[Music]
hello everybody welcome to another video
lesson this is search was accounting
lessons ph
and we will be discussing accounting for
merchandising operations
so in the previous lesson we're done
with the whole accounting process
for a service company and now we will be
focusing our discussion in merchandising
and specifically for today
we will be discussing sales and
purchases okay let's start
merchandising operations so
merchandising is a business activity of
buying and selling of goods so we don't
give services here or we don't do the
goods that we are selling
it's just that we will be selling goods
your mommy will buy first the things
that are needed in your sarasota store
okay the goods that a merchandising
company
sells to its customers are called
merchandise inventory
or simply inventory okay so
okay uh formally in accounting we call
it inventory or merchandise inventory
okay so it is a company resource nagina
gaming
and since because it is a company
resource it is an
asset and it is reported in the
financial statements as a current asset
okay so the definition of current versus
non-current asset
will be discussed with you in
fundamentals of abm part two
for now uh you can imagine the balance
sheet uh
and young assets
okay that's it so
okay so we have many examples of
merchandising operations
grocery marathon department store human
emerge official merchandise
online marine time appliance centers so
when your company is buying goods before
you
sell those goods then that's what you
call
a merchandising operation okay so
in discussion of merchandising
operations
independent hindi nothing
the operating cycle of a merchandising
entity goes like this
shampred the company has cash in order
for them to sell something s
congratulations you already have
merchandise inventory
your room merchandise inventory
and the operating cycle goes forward and
goes forward
credit sales in credit sales sales on
account
accounts receivable transactions
service companies service
let's make the operating cycle much more
simpler
it looks like this okay so thank you
to principlesofaccounting.com for this
um a very simple diagram
okay so it starts with cash the company
has cash they will have
an inventory from a purchase transaction
and then they will have a sales or they
will undergo a sales transaction
on account so there's an account
receivable and then the
accounts receivable will be collected by
the company and then the company has
cash again
and the cycle goes forward and goes
forward again
okay my cash and company pacabilenta
okay so before we formally discuss
anything about
selling or purchasing we need to
understand first
what is a gross invoice price in
accounting for merchandising operations
we always record the gross invoice
price in the books merchandises are
always coated in the original price
called
list price
merchandise on a company set up indeed
usually uh you will be given what you
call a list price
this is the original price however
there will be uh deductions that will
you're the buyer
and encourage the buyer to sell
to to buy more merchandise okay
trade discounts okay now
list price papa
hindi rinpo natin nirei record ang trade
discounts
gross invoice price okay
so let's have an example so we have
problems one and two number one is find
the amount that will be recorded in the
books of gym in trading regarding their
purchase of merchandise
listed as six thousand pesos and is
given a trade discount of twenty percent
dunamis the list price is seven thousand
and then my chain discounts in the
thirty and twenty five percent so i have
prepared a video lesson
way back
to discuss how to get gross invoice
price let's listen
to myself sir chua okay so let's try
this two problems first the first one
is so this is about girls invoice price
so number one
find the amount that will be reported in
the books of giving trading regarding
their purchase of merchandise
listed as 6 000 and is given a trade
discount of 20
so recalling the formula that was
discussed in the theory
we have less price
less trade
discount that is your
gross invoice
price okay so using this formula for
number one
the list price is 6 000
and then the trade discount is you will
be multiplying
six thousand by twenty percent so that
is six thousand
times point two which gives you
one thousand two hundred so that
that came from six thousand times
twenty percent okay so you just deduct
the list price to the trade discount so
six thousand minus one thousand two
hundred
gives you a gross invoice price of four
thousand eight
okay another approaches you can do is
you just multiply
6 000 to the complement percentage of 20
so 100 minus 20 that's 80 okay
so what you will do is
to get this one you can also do 6 000
times 80 percent automatically
that is your gross invoice price of
4 000 even okay and then for number two
find the amount that will be recorded in
the books of gym in trading regarding
their purchase of merchandise
listed as seven thousand and is given
chain discounts of 30
and 25 so in dealing with saying
discounts you will first apply
the 30 discount and then apply the next
25
discount okay so this is what you will
do okay
list price would be seven thousand
minus trade discount of seven thousand
times thirty percent so seven thousand
times point
three is two thousand one hundred and
then this is your
first gross invoice price so 7 000
minus 2 100 gives you 4
900. however we are still subject
to 25 discount so you multiply again
another trade discount
four thousand eight hundred so you will
be using this one
times twenty five percent okay so four
thousand eight hundred times point
twenty five gives you
one 1225 okay
then you deduct both so this will be
your final gross invoice price
so 4 900 minus one two to five gives you
three thousand hundred
now for to make it easy you can also do
this approach so what you can do is
7 000 multiply it by the complement of
30
which is 17 and then you again multiply
it to the complement of 25
which is 75 so let's try
7000 times 0.7 times 0.75
gives you 3675 okay
so these are our problems for the gross
invoice price
okay i hope you understand uh sir chua
on that
okay so let's move forward let's talk
about a sales transaction
in the sales transaction the legal
ownership of the goods is transferred
from the seller of the goods to the
buyer of the merchandise
this is technically transfer of legal
ownership so when we say
sales transaction when someone buys
merchandise
the legal ownership is transferred and
remember when the legal ownership is
transferred that is transferred from the
seller to the buyer
of the merchandise when you purchased a
flat screen television from an appliance
center
the appliance center first had the
ownership of the television when they
bought it from the supplier so at that
point palang
say supplier moon eleni appliance center
transfer and ownership kai appliance
center
and now that you are ready to buy that
television
the appliance center then sells you the
television and transfer the ownership to
you in the sales transaction so hapagana
billionaire flat screen television
the legal ownership of the goods is
transferred from the seller
which is the appliance center to you the
buyer
the uh consumer okay so
always remember it's a sales transaction
revenue is earned each time a sale
is made merchandising operations
sales revenue is our main revenue
producing
activity
sales can be accepted in cash or
accounts
companies
when goods are sold on account the terms
of payment must be specified in on the
invoice
so this term of payment is called the
credit term
fraction 2 over 10 n over thirty
two over fifteen five over ten n
over sixty five over ten n over e o
m parameter okay so let's discuss
when sales are sold on account
terms of payment so for example i'm
being again the terms of payment don't
say credit term or
okay two percent discount when you paid
within 10 days but the deadline of
payment
for the whole amount of the merchandise
without
discount is 30 days
2 over 15 5 over 10 and over 60.
be begin can a seller see by your ib
beginning seller
now 2 discount if paid within 15 days
five percent discount if paid within 10
days
within 10 days
the whole merchandise and deadline for
payment is
60 days five over 10 and over eom
pakistan
and over eon
okay very good
okay so five percent discount if paid
within 10 days but the deadline of
payment is at the
end of month young eoms
and over sixty per depot one over ten
and over fifteen poeden
company policy me seller
sales whether in cash or on account are
sometimes returned to the seller because
of wrong call or wrong size inferior
quality and many other reasons
sales returns and allowances
sales returns are merchandise returned
to the seller
which implies a cancellation of sale
[Music]
the seller will return the payment made
of the buyer
because the sales transaction or the
sale transaction is
cancelled on sales allowances which are
granted to customers if customers keep
the merchandise
although unsatisfied with what they
bought
[Music]
okay
returns and allowances to record
these types of transactions okay so
example problem uh dealt
with uh the following transactions were
dealt with by lisa merchandising
so we have uh transactions april 1 april
2 april 5 and april 11
and sir chu has a video on that let's
watch
myself
okay so we now proceed to your problem
regarding
sales transactions okay so the following
transactions were dealt with by
lisa merchandising so we will be doing
journal entries on how to properly
record
sales transaction of sales transactions
over merchandise
okay so on april 1 sold merchandise to
gen
company with a price of 12 000
cash on delivery so immediately after
the merchandise has been delivered to
the customer
which is jenny cash has already been
received
by lisa merchandising okay
so we will do a simple entry that
will record the receipt of cash and
recording a sales revenue or sales on
the side of lisa merchandising
so your essay would be april
1 cash
for the amount of the selling price of
the merchandise
which is 12 000
and then credit sales revenue or
simply sales that is another
twelve thousand okay we proceed with
april two
sold merchandise to reserve company with
a price
of 8 000 with terms 2 over 10
and over 30. earlier we have discussed
this type of credit term so again let's
review
2 percent discount will be given if the
customer pays
us within 10 days but the deadline of
payment is in 30 days
okay and since the customer is not yet
paying the merchandise
this will be recorded to accounts
receivable
so debit
accounts receivable and then we put the
name of the customer
because this will be recorded in the
subsidiary ledger
this is for eight thousand
and then credit sales revenue to record
sales
for another eight thousand
okay next on april 5
jenny returned 3 000 worth of defective
merchandise and in which
cash refund was granted so what happened
is that
our customer in april 1 was not happy
with the merchandise which is worth 3
000 because some of them some of them
were defective
so we will be recording an entry
that would give back the cash to
the customer and this is the time that
we will be using the account title
sales returns and allowances okay so you
sales returns and
allowances
for the amount of merchandise that was
returned 3
000 and then credit cash three
thousand so if you will ask what
happened with the sales revenue
as regards to uh jenny company as our
customer
so sales of twelve thousand however uh
jenny returned 3 000 so our sales
revenue
as far as jenny is concerned is only 9
000.
and the amount of cash that we also
receive from jenny is also 9000
okay and then lastly 11 real estate
company paid
their account balance let's go back to
what has happened
on april 2 okay so the terms
is 2 over 10
and over 30. now let's check the
deadline for the two percent discount
okay if this is april 2 then we add 10
days the deadline
is on april 12th and then
per se was able to pay on the 11th day
of the month
so 2 plus 10 is 12 11 days so we can
grant her the discount
okay so what we will do is to compute
first for the cash discount that will be
given to jose
okay so if the sales revenue is eight
thousand we multiply uh we
we compute first for the cash distance
so the cash discount
would be eight thousand times
two percent discount okay so 8 000
times 0.02 this is 160. so we will give
per say 160 pesos worth of discount this
will be
recorded as a sales
discount so your entry
in the receipt of cash upon collection
of the account receivable from rsa
would be like this debit cash
for the amount that you will receive
minus the
so if the sales transaction or the
selling price
8000 minus 160
then you will only receive 7840
and then you record the sales discount
so that will be
sales discount
for 160 and then
we will be crediting
accounts receivable so that we will be
erasing
that effect through a company so credit
accounts
receivable per se
company or the whole eight
house so that's how we record
transactions
under sales transactions
okay i hope you understand uh how it was
discussed with you let's continue
with purchases
the cash collected by the merchandising
entity will then be used to purchase
goods that will be selling by the firm
sentence
and to purchase merchandise
merchandising entities need to purchase
inventory in order to be able to sell
and gain profit
we can say that purchases are also sales
transactions however the viewpoint here
is that the company that accounts for
the transaction
will be the buyer of the merchandise
purchase transaction a sales transaction
on point of view details of purchases
okay now so
let's try these uh this problem
so this is also from lisa merchandising
and we have transactions on may 1
may to may 7 and may 10 so for the
explanation let's watch
myself
and now we're ready to prepare journal
entries
for purchases transactions so purchase
transaction
so our point of view today is that we
are the buyer
of the merchandise okay the following
transactions
were dealt with by lisa merchandise okay
may 1 purchase merchandise from
m company amounting to 15 000 cash on
delivery so before anything else
what we will be using in these journal
entries are
the periodic system of inventory as
opposed to the perpetual system of
inventory
so in the periodic system of inventory
inventory accounts are only done
periodically so we will be using the
account title
purchases rather than debiting it
directly to merchandise inventory
okay so on may 1 purchase merchandise
from
m company amounting to 15 000
cash on delivery okay so in this target
we in the second problem we are the
buyer here
so we are the one to pay the cashier
so your transaction on may 1
would be debit
purchases for the amount of the purchase
transaction
you have which is 15 000
and then credit cash for 15
000 much like how you purchase an asset
okay so you just debit purchases
and then credit cash okay next is made
to
purchase merchandise to give companies
who give companies the seller here
amounting to 6 000 terms 5 over 10
n over e o m so this is a bit familiar
again to you
when we have this uh credit term it
means that we are not yet paying or
a cash transaction is nothing okay
so on day two your energy would be would
still be
debit purchases for the amount of your
purchase
which is the six thousand and then
credit accounts payable
and then we write again the name of the
seller for us to be able to record it
later in the subsidiary ledgers
so this is kim company
amounting to 6 thousand
okay so we continue with the may 7
transaction
lisa returned 3 000 worth of merchandise
to
m company cash refund was granted so
earlier in sales transactions we were
able
to use the account sales returns and
allowances
now the prospect of the buyer and that
lisa merchandising is our buyer
we will be receiving cash because we
were granted
of a country fund so debit cash
for the amount of merchandise returned
to m company 3
000 and then credit
purchase returns
and allowances so we will be using this
account title
in order for us to signify that this is
the purchase returns and announcements
okay and then on mated lisa paid
their account balance to kim company now
looking at this again at game company
the deadline of payment is within 10
days for
lisa to get five percent uh discount
so 5 over 10 and over eof so let's add
again
10 days to this transaction which is
on may 12 however we
paid already or lisa the company paid
already on may 10
so they will be granted of the cash
discount
five percent okay so let's compute again
for the cash
discount the cash discount would be
the amount of six thousand this one
multiplied by five percent okay so let's
multiply six thousand times
five percent that gives you three
hundred
okay so this will be your purchase
discount so your entry since you will be
paying
your account payable to kim company
debit accounts
payable kim
company for the wool amount of 6 000
credit cash because you were granted of
a cash discount
six thousand minus three hundred our
cash payment will only be
five thousand seven hundred and then
record the discount as
purchase discount
for three so these are
our transactions and journal entries for
purchases okay i hope you understand how
to record purchase transactions
and then we we also have another problem
here gab company has
gross sales of 400 000 in the
valentine's sales discounts
and sales returns and allowances and
then uh
purchases worth 200 000 and then
purchase discount and purchase returns
and allowances
so let's watch again sir chua for the
discussion of this problem
so now we will be computing for the
amounts of sales and purchases that will
be presented later
in the income statement so later we will
be preparing an income statement but for
now
let's work on some problems which
relates sales and purchases
gab company has gross sales of 400 000
sales discounts of 10 000 and sales
returns and allowances of twelve
thousand
also gaba's purchase were two hundred
thousand inventory
in which purchase discount is eight
thousand purchase returns and allowances
is five thousand compute for the net
sales and then purchases
okay so let's first compute for
the net sales
in computing for net sales we start with
the gross amount of sales
so gross sales
gross sales amounted to 400
000
then we will deduct all of our contra
sales accounts which are two we have
your
sales discount
which amounts to 10 000
and you also deduct your sales returns
and allowances which is twelve thousand
okay so you deduct the two so we have
four hundred thousand minus ten thousand
minus twelve thousand which gives us
three hundred
seventy eight thousand and this is the
amount of your
mail sales okay so always remember that
these two
are your contra sales
a house let's now move on to net
purchases
in-net purchases so we have here net
purchases and that purchases is work it
works the same way as how we do it in
cash
so we have gross purchases
amounting to 200
000 less
purchase discount the purchase discount
that was granted to the company
is 8 000 and then we also deduct
purchase returns and allowances
of five thousand so
we compute for that again two hundred
thousand
minus eight thousand minus five thousand
gives us
187 thousand and that is your
net purchases okay
so that is the amount of net sales and
then purchases
and then this one always remember this
is your contra
purchases account
okay i hope you understand our lesson
today so our next lesson would be about
transportation
there are sometimes the buyer is in
manila
and then the seller is in cebu or vice
versa
so who owns the goods
and this is still in relation to our
lesson on merchandising operations
this search was accounting lessons ph
thank you
and have a great day
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