Inventory Info for Class

INVENTORY INFO FOR CLASS:

Merchandisers, Manufacturers, and Inventory Transactions

A merchandiser is simply a company who buys a finished product from a manufacturer and sells the product directly to the consumer. Common examples of merchandisers are Walmart, Target, Kmart, and grocery stores. They buy products from companies like Proctor & Gamble, Keebler, and Johnson & Johnson. Then they turn around and sell those products to consumers like you and me.

Both merchandisers and manufacturers must purchase, manage, and sell merchandise inventory.

When we record a cash sale, we will record a debit to cash and a credit sales. At the same time we also need to record an entry to book the expense of the merchandise and also move it out of merchandise inventory. To do this, we record a debit to cost of merchandise sold and a credit to merchandise inventory. These are the basic transactions that we would record when a sale occurs. If the sale is made on credit versus using cash, the only difference would be the first entry would be a debit to accounts receivable and a credit to sales rather than a debit to cash and a credit to sales.

Sales Discounts/Cash Discounts

This is basically when a company offers their customers a small discount if they pay their invoice within a really short timeframe – usually 10 or 15 days. So on 261, in the yellow box, they show an example of this. The customer’s invoice was for $1,500 but they paid early and got a 2% discount. So when the company records the receipt of cash, they will debit cash for the amount actually received which in this case was $1,470 ($1,500 less the 2% discount). Then they have to relieve the accounts receivable account – now remember the accounts receivable is sitting on the books at the full $1,500. So we have to take it off the books at the full $1,500. So the difference of $30 goes to Sales Discounts.

Periodic vs Perpetual Inventory

Under the periodic inventory system, we only...