FA27 - Inventory Discounts (2/10, Net 30) EXPLAINED
Summary
TLDRThis video walks through a series of accounting transactions for Romney Inc., focusing on journal entries for inventory purchases, returns, discounts, and sales. The instructor highlights key concepts like treating freight costs as part of inventory value, applying discounts, and handling returns. The video also covers how to record these transactions in a systematic way, making it a useful resource for anyone learning accounting basics. The instructor emphasizes that while the problem may seem complex due to the number of transactions, it's manageable when broken down step-by-step.
Takeaways
- 📘 The video provides instructions on how to download a counting workbook from a website and access both public and members-only videos on YouTube.
- 🔍 The script covers a detailed walkthrough of accounting transactions for Romney Inc., including purchases, sales, returns, and discounts.
- 🛒 On February 1st, inventory was purchased on account for $3,400, with a 2% discount available if paid within ten days.
- 🚚 February 2nd involved paying $200 for freight, which is considered part of the inventory cost rather than an expense.
- 🔄 A return of $400 worth of inventory occurred on February 5th, adjusting the accounts payable and inventory values.
- 💳 On February 9th, the inventory was paid for in full, with a 2% discount applied, resulting in a payment of $2,940.
- 📈 Sales on February 11th included selling inventory on account for $3,500, with terms of 2/10 net 30, indicating a possible discount for early payment.
- 📦 Additional inventory was purchased on February 14th for $2,500, with a 1% discount for payment within the net 30 terms.
- 🛍 Another sale was made on February 19th, this time for $1,500 on account, with a cost of goods sold (COGS) of $600 and terms of 2/10 net 30.
- 💸 Payment for the February 14th inventory purchase was made on February 21st, taking the 1% discount, resulting in a payment of $2,475.
- 🔄 A customer from the February 11th transaction paid the full amount owed on February 24th, without taking the discount.
- 🛒 A customer from the February 19th transaction returned $100 worth of inventory on February 25th, which was credited back to their account and restocked.
- 💳 The final transaction on February 28th involved a customer from the February 19th sale paying the amount owing, less a 2% discount for early payment, totaling $1,372.
Q & A
Where can the problem discussed in the video be downloaded?
-The problem can be downloaded at CountingWorkbook.com by clicking on the PDF link.
What additional content is available on the website besides the public YouTube videos?
-The website offers more videos than those listed publicly on YouTube, including members-only videos covering every problem in the workbook.
What is the first transaction discussed in the problem, and how is it recorded?
-The first transaction is a purchase of inventory on account for $3,400. It is recorded by debiting Inventory for $3,400 and crediting Accounts Payable for $3,400.
How should the cost of freight for inventory be recorded?
-The cost of freight, which is $200 in this case, should be debited to Inventory rather than an expense account, as it is part of the cost of acquiring the asset.
What is the journal entry for returning $400 of inventory?
-The journal entry for returning $400 of inventory involves crediting Inventory for $400 and debiting Accounts Payable for $400.
How is the discount on inventory payment calculated and recorded?
-The discount is 2% of the remaining $3,000 owed after a return, which equals $60. The payment is recorded by crediting Cash for $2,940, debiting Accounts Payable for $3,000, and reducing Inventory by $60.
What entries are made when inventory is sold on account?
-When inventory is sold on account for $3,500, the entries are: Debit Accounts Receivable $3,500, Credit Sales Revenue $3,500, Debit Cost of Goods Sold $1,600, and Credit Inventory $1,600.
How is the inventory purchase on February 14th recorded, considering the discount terms?
-The purchase of $2,500 is recorded by debiting Inventory and crediting Accounts Payable for $2,500. Upon payment with a 1% discount, Cash is credited for $2,475, Accounts Payable is debited for $2,500, and Inventory is reduced by $25.
What happens when a customer returns inventory?
-When a customer returns $100 worth of inventory, Accounts Receivable is credited, Sales Returns is debited for $100, Cost of Goods Sold is credited for $40, and Inventory is debited for $40.
How is the final payment from the customer on February 28th recorded, including the discount?
-The payment is recorded by debiting Cash for $1,372, crediting Accounts Receivable for $1,400, and recording the $28 discount as a Sales Discount, which reduces Sales Revenue.
Outlines
📚 Introduction to Romney Inc.'s Accounting Problem
This paragraph introduces the accounting problem from a video, which involves combining purchases and sales transactions for Romney Inc. The video script guides viewers on how to access the workbook and videos covering all problems, including members-only content. It then jumps into problem 6.3a, which requires creating journal entries for a series of transactions, starting with a purchase of inventory on February 1st for $3,400, considering terms like a 2% discount for early payment. The explanation includes the accounting treatment for freight costs as part of inventory acquisition and adjustments for inventory returns and discounts.
🛍️ Sales, Purchases, and Discounts in Romney Inc.'s Transactions
The second paragraph continues the discussion of Romney Inc.'s accounting problem, focusing on sales and purchases made throughout February. It details the process of recording sales on account, the cost of goods sold, and the application of discount terms. The paragraph also covers the purchase of inventory on February 14th with terms of 1/15 net 30, the subsequent sale on February 19th, and the payment of the inventory purchase while taking advantage of the discount. Each transaction is carefully explained, emphasizing the accounting entries involved in sales, returns, and discounts.
🔄 Handling Returns, Discounts, and Final Payments in Romney Inc.'s Accounts
The final paragraph wraps up the accounting problem by addressing inventory returns, customer payments, and the application of sales discounts. It explains the accounting for a customer returning $100 worth of inventory and the necessary journal entries to reverse the sale and adjust inventory values. The paragraph also discusses the payment of the amount owing by a customer who took advantage of a 2% discount for early payment, resulting in a reduction of sales revenue. The summary concludes with the completion of the problem, highlighting the complexity of managing multiple transactions and the importance of accurate accounting entries.
Mindmap
Keywords
💡Journal Entries
💡Inventory
💡Accounts Payable (AP)
💡Freight
💡Discount
💡Sales Revenue
💡Cost of Goods Sold (COGS)
💡Accounts Receivable (AR)
💡Sales Returns
💡Contra Revenue
Highlights
The video provides a downloadable workbook from a website with a PDF link.
The website hosts more videos than listed on YouTube, including both public and members-only content.
Members-only videos are accessible by joining through a button on the YouTube video player.
Problem 6.3a involves combining purchases and sales, adding complexity to previous problems.
Journal entries are created for various transactions of Romney Inc.
Inventory purchases on account are recorded with a debit to inventory and credit to accounts payable.
Freight costs are considered part of the inventory cost, not an expense.
Inventory returns reduce the inventory account and accounts payable.
A 2% discount is applied for payments made within ten days on inventory purchases.
Sales of inventory on account are recorded with debits to accounts receivable and credits to sales revenue.
Cost of goods sold is debited and inventory is credited for the cost of the sold items.
Sales discounts are considered when recording sales on account.
Inventory purchases made with discount terms are recorded with the discount applied.
Payments for inventory purchases reduce accounts payable and inventory value by the discount amount.
Customer payments for sales on account are recorded, with full payment if no discount is taken.
Sales returns are recorded with credits to accounts receivable and debits to sales returns and cost of goods sold.
A customer taking a discount on a sale with returns is calculated and recorded.
The video concludes with a summary of the complex transactions handled in the problem.
Transcripts
the problem from this video can be
downloaded at a Counting workbook calm
if you go to the website click the PDF
link and you can download a copy of this
and all of my problems for yourself now
if you check the website and you click
on videos you'll see there are more
videos than those I've listed publicly
on YouTube you can see that there's
every problem covered in the workbook
has either a public video or a
members-only video if you'd like access
to the members only video just click the
join button beneath the video player on
YouTube alright let's jump into the
problem let's examine problem 6 3a this
has us combining purchases and sales if
you did six one and you did six two they
kind of separated them and gave you just
a small taste six three a kind of puts
it all together and even adds a little
bit more so let's get going the
following transactions occurred for
Romney Inc and big long list of
transactions and it says give us journal
entries okay so that's what we're gonna
do start with the first one
Feb first purchased inventory an account
$3,400
okay so we're buying inventory on
account when you buy inventory on
account debit inventory and the amount
was thirty four hundred we credit AP
thirty four hundred now remember the
terms two percent discount if we pay
within ten days otherwise we've got to
pay the full amount within 30 February
second paid Freight on the inventory
okay we haven't had to deal with this
yet so paid cash of two hundred dollars
so let's credit cash because that's the
easy part here two hundred now very
interesting here when you pay to have
inventory delivered the cost of
acquiring the asset the cost to make any
asset kind of useful to you is actually
considered not an expense but part of
the cost of the asset so part of the
cost of the inventory is the delivery
charge which is a little bit weird again
I think a logical person might look at
this and say Oh debit freight expense or
every expense or something like this we
do not debit that we say look the costly
inventory if you wanted to get this
inventory 3400 it was necessary to pay
the $200 on top to acquire the inventory
that's part of your inventory costs so
we actually debit inventory here for 200
so again $3,400 of inventory plus $200
of shipping it's actually a thirty six
hundred dollar piece of inventory or a
bunch of inventory okay so that was
February 2nd February 5th bad news here
we returned four hundred dollars of
inventory okay so we were returning some
inventory credit inventory four hundred
dollars debit ap we're saying we don't
owe you that four hundred dollars
anymore we are returning the inventory
we're assuming everybody agrees to that
February ninth we pay for the inventory
when I pay for the inventory I got a
credit cash but we gotta figure out how
much now as we're looking at this I'm
ignoring this part of the transaction
right this freight part because I've
already paid the freight I don't have to
worry about that but I do have to worry
about this $3,400 inventory purchase and
the four hundred dollar return well
guess what though it's three thousand
dollars worth of inventory now the
question is do I qualify for the
discount the answer is well I paid
within ten days yes so I get a 2%
discount which is a sixty dollar
discount meaning I pay twenty nine forty
right 29 40 I pay $60 is discount well
if I pay twenty nine forty credit cash
29 40 on February 9th
i debit ap to say whatever I owed on
this I don't know anymore I've paid the
bill in full and the bill in full was
$3,000 right it was the 3400 - the 400 I
still owed $3,000 on the bill so I got a
debit 8p for that $3,000 and you can see
now I've got 3,400 and debits - AP
$3,400 and credits - ap but wait you say
there's a $60.00 missing amount this
reduces our inventory value we only pay
2940 for the inventory so that $60
discount comes out of the value of the
inventory okay moving on February 11th
now sold inventory for $3500 on account
the inventory cost $1600 terms 2/10 net
30 so we sold 3,500 dollars of inventory
or inventory that was priced at 3,500 so
let's deal with that
February 11th debit cash no cash we sold
on account debit accounts receivable
credit sales Rev for how much 30 I
thought yeah there it is 3,500 sorry yes
go on blind there Stephanie are credit
sales debit cost of goods sold
credit inventory for what we sold so for
the cost and that was $1600 now again
there are discount terms on this so when
I make this sale I'm keeping that in
mind that I'm gonna probably or possibly
need to adjust this February 14th
Valentine's Day oh now we're starting to
juggle we purchase some inventory $2,500
terms 115 net 30 all right so Feb 14th
debit inventory credit AP for an
inventory purchase and the amount was
2,000
five hundred dollars we make another
sale on February 19th oh my goodness
it's old inventory 1500 on account $600
was the cost terms to ten thirty okay
whenever I sell inventory again I'm
thinking two entries debit AR credit
sales Rev debit cost a good sold credit
inventory and the amounts were given up
there the amounts were on February 19th
1500 was the sales amount 600 was the
cogs amount okay that's it for February
19th February the 21st paid for the
inventory purchase from February 14th
okay so February 14th we purchased
inventory terms 115 a 30 yes when we pay
we are taking our discount there were no
sales returns in in between so it's a
$2,500 bill but we take a 1% discount
you can see the terms are 115 net 30 so
this is a $25 discount meaning we pay
twenty four seventy-five so let's do it
February I think it was twenty first let
me just tech on my key so let's go back
up yeah everybody's wedding first
we're gonna credit cash 2475 we're gonna
debit ap in the AP related to our
February 14th amount was 2500 bucks
so debit a be 2500 and then there's this
$25 discount amount that is a reduction
in our inventory value we did not pay
the full 24 70 we did not pay the full
2500 for inventory we paid twenty four
seventy five so we got a reduce our
inventory value by that twenty five
dollar discount it's the inventory value
taury on the books is what you paid for
it not some full price amount it's it's
the discounted amount next February 24th
customer from February 11th transaction
paid the amount owing okay so let's see
what happened on February 11th remember
the details of that sold three thousand
dollars of inventory on account terms
two ten net thirty Feb 24th they pay
they don't get their discount so they
just got to pay the full amount okay so
they had to pay us they owed us 3500
bucks guess what they got to pay us 3500
bucks so February 24th debit cash 3500
credit AR 3500 that was a simpler one
next February 25th a customer from
February 19th transaction let's
highlight that transaction returns $100
worth of inventory caught cost forty the
inventory was good condition and put
back on the shelf for resale okay so
they made $100 returned and we're gonna
give them $100 credit to their account
so again they made this purchase and at
$1500 purchased and they said hey $100
this we didn't like we'll give them $100
credit to their AR this was on February
the 25th credit AR buy a hundred bucks
the debit is to sales returns a hundred
bucks
so they've returned the item it goes to
this contra revenue account called sales
returns so far so good
we got to put the inventory back on the
shelf and it's $40 worth of our
inventory the credit is two cogs to say
okay that stuff that we said was goods
that we sold we didn't sell it
right we went debit cogs Credit
inventory now we're saying reverse that
that sale didn't happen
flip that portion of the sale back so
there we've done it last but certainly
not least and one of the trickier ones
and this is just a juggling act right
all we're doing is juggling here
customer from February 19th sale pays
the amount owing okay so we kind of
figure out what they owe us so I'm gonna
erase this stuff just because we're not
really referring to it anymore
okay so February 1915 hundred dollar
sale and they've returned a hundred
dollars worth of merchandise so it's
really fourteen hundred dollars that we
are planning to collect but guess what
they paid within 10 days terms were a 2%
discount February 19th or 20th it is
within 10 days so they can take a 2%
discount they get $28 off meaning they
pay $1,400 minus $28 is thirteen hundred
and seventy two dollars okay let's deal
with that this is on Feb 28th debit cash
I forgot the amount already 1372 we got
to get rid of their AR there AR was
$1400 it was fifteen but it went down to
fourteen so we get rid of their AR and
we're left with $28 in debits this
amount again it's like a reduction of
our sales revenue but there's a specific
account for this called sales discounts
we gave a discount and this gets word as
a contra revenue account it reduces our
sales revenue by 28 bucks okay I think
we have done it here ladies and
gentlemen we've made it to the bottom of
this problem all sorts of purchases
returns discounts etc a challenging
problem but it's more of a juggling act
I don't think it's
if you look at each individual
transaction I don't think it's any
harder than 6 1 or 6 2 but it's just
that there's so many of them that's all
for this video stay tuned for our next
one bye for now
Посмотреть больше похожих видео
Lesson 027 - Accounting for Merchandising Operations 1: Sales and Purchases
FA 34 - Inventory - Weighted Average (Average Cost) Method
FA 33 - Inventory - LIFO Method
FIFO Periodic & Perpetual I Pengantar Akuntansi
Lesson 028 - Accounting for Merchandising Operations 2: Transportation
FA21 - Completing Bank Reconciliations - The Journal Entries
5.0 / 5 (0 votes)