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Merchandising operations - Purchases

5 important questions on Merchandising operations - Purchases

If the sales terms are 2,10,n30 when can the buyer take a discount? How much? When must the bill be paid?

The buyer can take a 2% discount if the bill is paid within ten days. The bill must be paid in thirty days.

How do many companies track how well discounts are taken? What is this called?

All inventory and accounts payable are for the discounted price. If the discount is missed, the money must be noted as Discounts Lost. This is called the net method.

What is the alternative to the net method? What is it?

The gross method records purchases at the total price, and if the discount is taken it is credited as Purchase Discount Taken.

How is a sales return handled on the buyer's part?

Debit Accounts Payable and credit Inventory

Why is a Transportation-in account a sensible option for merchandisers?

It is not practical often to apply shipping costs to specific items if many different products are in the same shipment. Materiality permits a general account for shipping expenses to avoid costly expense allocation.