The cost of new merchandise is recorded in a temporary Purchases account. This requires updating the inventory account and determining cost of goods sold only at the end of a period. Accumulates the net cost of merchandise purchases in the inventory account and, when an item is sold, its cost is subtracted from the inventory account and recorded in a Cost of Good Sold account. The emphasis in this chapter is on the Perpetual Inventory System. Cost of Merchandise Purchases Transactions are recorded using the invoice price.
Inventory is debited and accounts payable is credited.
If a cash discount is later awarded to purchasers for payment within a specified period of time called the discount period, accounts payable is debited for the discount and merchandise inventory is credited. Purchase Returns and Allowances Purchase returns are merchandise received by a purchaser but returned to the supplier because of errors or damaged goods. If merchandise is returned, accounts payable is debited for the cost of the returned merchandise and inventory is credited. A purchase allowance is a reduction in the cost of defective merchandise received by a purchases from a supplier. Accounts payable is reduced by the amount of the reduction, and merchandise inventory is credited.