Professor Adams' Lecture Materials

LO8-03: Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Expenditures necessary to bring inventory to its condition and location for sale or use are included in its cost.

Condition: costs associated with unloading, unpacking, and preparing merchandise inventory for sale or raw materials inventory for use.
Location: costs associated with shipping charges paid by buyer and cost to insure products in transit paid by buyer.

Freight-in on purchases

The cost of freight-in (shipping charges) paid by the purchaser is part of the cost of inventory. For a seller, any shipping charges paid on outgoing inventory is recorded as either cost of goods sold or as a selling expense included in operating expenses.

Purchase returns (buyer's perspective)

From the buyer's perspective, a return of inventory to the supplier results in a reduction of inventory.

Purchase discounts

We talked about purchase discounts from the seller's perspective in previous Module. There we discussed that a seller can account for purchase discounts using either the gross or net methods. A buyer can also use these methods.

Recording transactions in a perpetual and periodic system

Page updated

Google Sites

Report abuse