2. 11-1 SALES AND PURCHASES CHAPTER 11

3. 11-2 How does a company attempt to earn an income? Sales

4. 11-3 selling products or merchandise Income buying products or merchandise Sales Sales

5. 11-4Sales Revenues from sales cost of goods sold operating expenses gross margin from sales (gross margin or profit) factors concerning sales?

6. 11-5 Net Income gross margin from sales (gross margin or profit) Sales Revenues from sales cost of goods sold operating expenses

7. 11-6 To be great enough to pay for cost of goods sold and operating expenses and to provide a sufficient net income Sales Net sales= gross proceeds from sales of merchandise - sales returns-allowances -sales discounts. The increasing of sales indicates the potential growth and the decreasing means the possible decreased earnings and other financial problems in the future. Net sales:

8. 11-7Sales Gross sales consist of total sales on cash and sales on credit during a certain accounting period. Gross sales:

9. 11-8 Suppose the sale is made for cash… Cash 1,000 Revenues from Sales 1,000 Sales The entry?

10. 11-9 Suppose the sale is made on credit … Accounts Receivable 1,000 Revenues from Sales 1,000 Sales The entry?

11. 11-10 Sales returns and allowances reflect the dissatisfaction of customers, so a company should provide efficient control of the sales returns and allowances. Sales Returns and Allowances If the commodities are in damaged condition or unsatisfying, the seller may allow the customer to return the item or give the customer an allowance off the sales price.

12. 11-11 Accounts Receivable (or Cash) Sales Returns and Allowances 200 200 Sales Returns and Allowances

13. 11-12 If the debit side is sales account instead of sales returns and allowances? Sales Returns and Allowances The entry can’t reveal the dissatisfaction of customers. What about the entry?

14. 11-13 Trade Discount and Sales Discount In order to get a big sale, a merchandising company usually quotes prices of goods at a discount (such as 20%, 30%) off the list of catalogue price. trade discount.? Trade discount?

15. 11-14 Suppose that the seller of an article listed at $2,000 with a trade discount of 25%... The entry? Cash 1,500 Revenues from Sales 1,500 Trade Discount and Sales Discount

16. 11-15 Trade Discount and Sales Discount The seller often provides discounts to the customer in order to let the seller pay early. Such discount is called sales discount. sales discount.? Sales discount? Sales discount can increase the seller’s liquidity.

17. 11-16 “2/10, 1/20, n/30” The customer may take a 2 percent discount if the debt is paid within 10 days and 1 percent discount if the it is paid within 20 days. The term of n/30 indicates that the customer must pay the full amount after 30 days without discount. Now, let’s look at an example of sales discount. Trade Discount and Sales Discount

18. 11-17 At the end of the accounting period, the Sales Discounts account has accumulated all the sales discounts taken during the accounting period. Sales discounts are recorded only at the time the customer pays because the seller can’t know whether the customer will take advantage of the discount by paying in the discount period. Sales discounts are considered a contra revenue account since sales discounts reduce revenues from sales. Trade Discount and Sales Discount

19. 11-18 Assume that George Ross Advertisement Company sells merchandise to a customer on March 3 rd for $400, on terms of 2/10, n/30.... The entry? Trade Discount and Sales Discount

20. 11-19 If the customer paid the amount on March 3 nd If the customer paid the amount on March 22 nd If the paid the full amount on April 2 nd Accounts Receivable 400 Revenues from Sales 400 Cash 320 Sales Discount 80 Accounts Receivable 400 Cash 400 Accounts Receivable 400 Trade Discount and Sales Discount

21. 11-20 Purchases account? Which items should be recorded in the purchases account ?

22. 11-21 Purchases account? Inventory Automobiles Buildings Machines Raw material

23. 11-22 Purchases account? Resale Buying products or merchandise Purchases account

24. 11-23 Sales Returns and Allowances Damaged Unsatisfying

25. 11-24 Returns and Allowances Returns Allowances

26. 11-25 Purchase returns and allowances Sales returns and allowances Purchase returns and allowances SellerBuyer

27. 11-26 Purchase returns and allowances Now, let’s look at an example for T.EN Fashions

28. 11-27 Purchase returns and allowances example T.EN Fashions purchased a unit of sweaters for 4,000 dollars on credit from Bihai Costumes Company. On the delivery date, T.EN found some of the commodities are wetted. Bihai took 20% off the total price as alternative to returning the goods for full credit.

29. 11-28 Purchase returns and allowances example The journal entries Accounts Payable 800 Purchased Returns and Allowances 800

30. 11-29 Purchase Discount In order to collect the payment earlier, the supplier sometimes gives some discounts to the company. Such discounts are considered purchase discounts.

31. 11-30 Purchase Discount 2/10, n/30 within 10 days, 2% percent discount 30 days, deadline

32. 11-31 Purchase Discount Now, let’s look at an example for Purchase Discount

33. 11-32 Purchase discount example Suppose a company purchased merchandise on credit for $3,000 on September 9th, on terms of “2/10, 1/20, n/30”

34. 11-33 Purchase discount example The Entry? How much do they pay? If the company pays the debt on September 29 th

35. 11-34 Purchase discount example The entry Accounts Payable 3,000 Purchases Discounts 30 Cash 2,970

36. 11-35 Purchase discount example If the amount is paid on the deadline How much do they pay? The Entry?

37. 11-36 Purchase discount example The entry Accounts Payable 3,000 Cash 3,000

38. 11-37 WE ARE SAILING RIGHT ALONG!!