Chapter Three

Accounting for Merchandise Operations

Merchandising companies buy and sell merchandise inventories rather than perform services as their primary source of revenue.
Merchandising companies that purchase and sell directly to consumers are called retailers. Merchandising companies that sell to
retailers are known as wholesalers. The primary source of revenue for merchandising companies is the sale of merchandise, often
referred to simply as sales revenue or sales. A merchandising company has two categories of expenses: cost of goods sold and
operating expenses. Cost of goods sold is the total cost of merchandise sold during the period. This expense is directly related to the
revenue recognized from the sale of goods. The income measurement process for a merchandising company is as follows:
Sales revenue – cost of goods sold = Gross profit – operating expenses = Net income/loss
Operating Cycles
The operating cycle of a merchandising company ordinarily is longer than that of a service company. The purchase of merchandise
inventory and its eventual sale lengthen the cycle.
The operating cycle of a service company and merchandising company is given as:

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Note that the added asset account for a merchandising company is the Inventory account. Companies report inventory as a current
asset on the statement of financial position.
Flow of Costs
The flow of costs for a merchandising company is as follows: Beginning inventory plus the cost of goods purchased is the cost of
goods available for sale. As goods are sold, they are assigned to cost of goods sold. Those goods that are not sold by the end of the
accounting period represent ending inventory.

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Merchandise Inventory system
Companies use one of two systems to account for inventory: a perpetual inventory system or a periodic inventory system.
Perpetual system
In a perpetual inventory system, companies keep detailed records of the cost of each inventory purchase and sale. These records
continuously—perpetually—show the inventory that should be on hand for every item. Under a perpetual inventory system, a
company determines the cost of goods sold each time a sale occurs.
Companies that sell merchandise with high unit values, such as automobiles, furniture, and major home appliances, have traditionally
used perpetual systems. The perpetual inventory system is so named because the accounting records continuously—perpetually—
show the quantity and cost of the inventory that should be on hand at any time. A perpetual inventory system provides better control
over inventories than a periodic system. Since the inventory records show the quantities that should be on hand, the company can
count the goods at any time to see whether the amount of goods actually on hand agrees with the inventory records.
For control purposes, companies’ take a physical inventory count under the perpetual system even though it is not needed to determine
cost of goods sold.
Periodic system
In a periodic inventory system, companies do not keep detailed inventory records of the goods on hand throughout the period. Instead,
they determine the cost of goods sold only at the end of the accounting period—that is, periodically. At that point, the company takes a
physical inventory count to determine the cost of goods on hand. In this system, the revenues from sales are recorded when sales are
made, but no attempt is made on the sales date to record cost of merchandise sold.
Many small merchandising businesses, in particular, find that a perpetual inventory system costs more than it is worth. Managers of
these businesses can control their merchandise and manage day-to-day operations using a periodic inventory system.
To determine the cost of goods sold under a periodic inventory system, the following steps are necessary:
1. Determine the cost of goods on hand at the beginning of the accounting period.

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2. Add to it the cost of goods purchased.
3. Subtract the cost of goods on hand at the end of the accounting period.
Determining Cost of Goods Sold Under a Periodic System
Basic formula for cost of goods sold using the periodic system:
Beginning inventory + cost of goods purchased= Cost of goods available for sale - Ending inventory =Cost of goods sold
Example: Assume the following inventory purchases and sales data for x company.
January 1. Merchandise inventory (beginning inventory)…… ……… Birr 52, 500
1-31. Purchases on account………………………………………. 26, 200
1-31. Sales (on account): Selling price………………………….. 49, 750
Cost price…………………………. 28,000
31. Merchandise inventory (ending inventory)………………………. 50, 700

Required: Record the necessary journal entries under both periodic & perpetual inventory systems
Solutions:
Entries to record the Purchases from January 1 -31:
Periodic inventor system Perpetual inventory system
Purchases…. Birr26, 200 Merchandise inv. …Birr 26,200
A/P…………….. Birr 26,200 A/P………………… Birr 26,200

Entries to record the Sales from January 1 -31:

A/R…………… Birr 49,750 A/R…………… Birr 49, 750
Sales……………… Birr 49, 750 Sales …………… …… Birr 49,750

No Entry to record- CMS …………… Birr 28,000

CMS Merchandised inv. . . .……… Birr 28,000

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Recording purchase of merchandise
Companies purchase inventory using cash or credit (on account). They normally record purchases when they receive the goods from
the seller. Business documents provide written evidence of the transaction. A canceled check or a cash register receipt, for example,
indicates the items purchased and amounts paid for each cash purchase. Companies record cash purchases by an increase in Inventory
and a decrease in Cash.
A purchase invoice should support each credit purchase. This invoice indicates the total purchase price and other relevant
information. However, the purchaser does not prepare a separate purchase invoice. Instead, the purchaser uses as a purchase invoice a
copy of the sales invoice sent by the seller.
Under the perpetual inventory system, companies record purchases of merchandise for sale in the Inventory account. Not all purchases
are debited to Inventory, however. Companies record purchases of assets acquired for use and not for resale, such as supplies,
equipment, and similar items, as increases to specific asset accounts rather than to Inventory.
Freight Costs
The sales agreement should indicate who—the seller or the buyer—is to pay for transporting the goods to the buyer’s place of
business.
Freight terms are expressed as either FOB shipping point or FOB destination. The letters FOB mean free on board. Thus, FOB
shipping point means that the seller places the goods free on board the carrier, and the buyer pays the freight costs. Conversely, FOB
destination means that the seller places the goods free on board to the buyer’s place of business, and the seller pays the freight.
Under FOB shipping point, ownership of goods is transferred at the place of the seller but under FOB destination ownership of goods
is transferred at the place of the buyer.
FREIGHT COSTS INCURRED BY THE BUYER
When the purchaser directly incurs the freight costs, it debits the account Freight- In (or Transportation-In). For example, if Sauk
Stereo pays Acme Freight Company €150 for freight charges on its purchase from PW Audio Supply on May 6, the entry on Sauk
Stereo’s books is:

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May 6 Freight in (Transportation in) 150
Cash 150
(To record payment of freight on goods purchased)
Freight-In is a temporary account whose normal balance is a debit. Freight-In is part of cost of goods purchased. The reason is that
cost of goods purchased should include any freight charges necessary to bring the goods to the purchaser. Freight costs are not subject
to a purchase discount. Purchase discounts apply only to the invoice cost of the merchandise.
FREIGHT COSTS INCURRED BY THE SELLER
In contrast, freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller. These costs
increase an expense account titled Freight-Out or Delivery Expense.
Example: if upon delivery of goods on May 6, the seller pays €150 for freight charges. The entry on the book of seller would be:
May 6 Freight out (Delivery expense) 150
Cash 150
(To record payment of freight on goods sold)
Purchase Returns and Allowances
A purchaser may be dissatisfied with the merchandise received because the goods are damaged or defective, of inferior quality, or do
not meet the purchaser’s specifications. In such cases, the purchaser may return the goods to the seller for credit if the sale was made
on credit or for a cash refund if the purchase was for cash. This transaction is known as a purchase return. Alternatively, the
purchaser may choose to keep the merchandise if the seller is willing to grant an allowance (deduction) from the purchase price. This
transaction is known as a purchase allowance.
Example: Assume that on May 8 Sauk Stereo returned goods costing €300 to PW Audio Supply. The following entry by Sauk Stereo
for the returned merchandise decreases (debits) Accounts Payable and decreases (credits) Inventory.
May 8 Account payable 300
Purchase return and allowance 300
(To record return of goods purchased from PW Audio Supply)

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Because Sauk Stereo increased Inventory when the goods were received, Inventory is decreased when Sauk Stereo returns the goods
(or when it is granted an allowance).
Suppose instead that Sauk Stereo chose to keep the goods after being granted a €50 allowance (reduction in price). It would reduce
(debit) Accounts Payable and reduce (credit) purchase return and allowance for €50.
N.B: Purchase Returns and Allowances is a temporary account whose normal balance is a credit.
Purchase Discounts
The credit terms of a purchase on account may permit the buyer to claim a cash discount for prompt payment. The buyer calls this
cash discount a purchase discount. This incentive offers advantages to both parties: The purchaser saves money, and the seller
shortens the operating cycle by more quickly converting the accounts receivable into cash.
Credit terms specify the amount of the cash discount and time period in which it is offered. They also indicate the time period in
which the purchaser is expected to pay the full invoice price. For example: credit terms are 2/10, n/30, which is read “two-ten, net
thirty.” This means that the buyer may take a 2% cash discount on the invoice price less (“net of”) any returns or allowances, if
payment is made within 10 days of the invoice date (the discount period). Otherwise, the invoice price, less any returns or
allowances, is due 30 days from the invoice date.
Alternatively, the discount period may extend to a specified number of days following the month in which the sale occurs. For
example, 1/10 EOM (end of month) means that a 1% discount is available if the invoice is paid within the first 10 days of the next
month.
When the seller elects not to offer a cash discount for prompt payment, credit terms will specify only the maximum time period for
paying the balance due. For example, the invoice may state the time period as n/30, n/60, or n/10 EOM. This means, respectively, that
the buyer must pay the net amount in 30 days, 60 days, or within the first 10 days of the next month.
Example: assume Sauk Stereo pays the balance due of €3,500 (gross invoice price of €3,800 less purchase returns and allowances of
€300) on May 14, the last day of the discount period. The cash discount is €70 (€3,500*2%), and Sauk Stereo pays €3,430 (€3,500-

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 €70). The entry Sauk Stereo makes to record its May 14 payment decreases (debits) Accounts Payable by the amount of the gross
invoice price, increases (credits) purchase discount by the €70, and reduces (credits) Cash by the net amount owed.
May 14 Account payable 3500
Cash 3,430
Purchase discount 70
If Sauk Stereo failed to take the discount, and instead made full payment of €3,500 on June 3, it would debit Accounts Payable and
credit Cash for €3,500 each.
June 3 Account payable 3500
Cash 3500
(To record payment with no discount taken)
Net purchase = Total purchase – purchase return and allowance –
purchase discount

Recording of sales merchandise

In accordance with the revenue recognition principle, companies record sales revenue when the performance obligation is satisfied.
Typically, the performance obligation is satisfied when the goods transfer from the seller to the buyer. At this point, the sales
transaction is complete and the sales price established. Sales may be made on credit or for cash. A business document should support
every sales transaction, to provide written evidence of the sale. Cash register tapes provide evidence of cash sales. A sales invoice
provides support for a credit sale. The original copy of the invoice goes to the customer, and the seller keeps a copy for use in
recording the sale. The invoice shows the date of sale, customer name, total sales price, and other relevant information.
The seller makes two entries for each sale. The first entry records the sale: The seller increases (debits) Cash (or Accounts
Receivable, if a credit sale), and also increases (credits) Sales Revenue. The second entry records the cost of the merchandise sold:
The seller increases (debits) Cost of Goods Sold, and also decreases (credits) Inventory for the cost of those goods. As a result, the
Inventory account will show at all times the amount of inventory that should be on hand.
To illustrate a credit sales transaction, PW Audio Supply records its May 4 sale of €3,800 to Sauk Stereo (assume the merchandise
cost PW Audio Supply €2,400).
May 4 Account receivable 3,800
Sales 3,800

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 (To record credit sale to Sauk Stereo)
May 4 Cost of goods sold 2,400
Inventory 2,400
(To record cost of merchandise sold)
Sales Returns and Allowances
These are transactions where the seller either accepts goods back from the buyer (a return) or grants a reduction in the purchase price
(an allowance) so the buyer will keep the goods. Example: PW Audio Supply’s entries to record credit for returned goods involve (1)
an increase (debit) in Sales Returns and Allowances (a contra account to Sales Revenue) and a decrease (credit) in Accounts
Receivable at the €300 selling price, and (2) an increase (debit) in Inventory (assume a €140 cost) and a decrease (credit) in Cost of
Goods Sold, as shown below (assuming that the goods were not defective).
May 8 sales return and allowance 300
Account receivable 300
(To record credit granted to Sauk Stereo for returned goods)
May 8 Inventory 140
Cost of goods sold 140
(To record cost of goods returned)
What happens if the goods are not returned but the seller grants the buyer an allowance by reducing the purchase price? In this case,
the seller debits Sales Returns and Allowances and credits Accounts Receivable for the amount of the allowance.
N.B: Sales Returns and Allowances is a contra revenue account to Sales Revenue. The normal balance of Sales Returns and
Allowances is a debit.
Sales Discounts
The seller may offer the customer a cash discount—called by the seller a sales discount—for the prompt payment of the balance due.
Like a purchase discount, a sales discount is based on the invoice price less returns and allowances, if any. The seller increases
(debits) the Sales Discounts account for discounts that are taken. For example, PW Audio Supply makes the following entry to record
the cash receipt on May 14 from Sauk Stereo within the discount period.
May 14 cash 3,430
Sales discount 70
Account receivable 3500
(To record collection within 2/10, n/30 discount period from Sauk Stereo)
N.B: Sales Discounts is a contra revenue account to Sales Revenue. Its normal balance is a debit.
Net sales = total sales- sales return and allowance – sales discount

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Merchandise Inventory Adjustments
A merchandising company generally has the same types of adjusting entries as a service company. However, a merchandiser using a
perpetual system will require one additional adjustment to make the records agree with the actual inventory on hand. Here’s why: At
the end of each period, for control purposes, a merchandising company that uses a perpetual system will take a physical count of its
goods on hand. The company’s unadjusted balance in Inventory usually does not agree with the actual amount of inventory on hand.
The perpetual inventory records may be incorrect due to recording errors, theft, or waste. Thus, the company needs to adjust the
perpetual records to make the recorded inventory amount agree with the inventory on hand.
Therefore, at the end of the period it is necessary to remove from merchandise inventory the amount representing the inventory at
the beginning of the period and to replace it with the amount representing the inventory at the end of the period. This is accomplished
by two adjusting entries:
The first entry transfers the beginning inventory to income summary. Since the beginning inventory is part of the cost of
merchandise sold it is debited to income summary. It is also a subtraction from the asset account Merchandise inventory, is credited to
that account.
Income Summary…………………………..xx
Merchandise Inventory ……………………xx
The second adjusting entry debits the cost of merchandise inventory at the end of the period to the asset account, Merchandise
inventory. The credit portion of the entry effects a deduction of the unsold merchandise from the total cost of merchandise available
for sale during the period.
Merchandise inventory………………………xx
Income summary………………………………………xx
Closing Entries
A merchandising company, like a service company, closes to Income Summary all accounts that affect net income. In journalizing, the
company credits all temporary accounts with debit balances, and debits all temporary accounts with credit balances.

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Illustration: Consider the following data which is maintained by Alpha plc (a merchandising business solely
owned and managed by Mr. Larsen) for the year ended December 31, 2020.

Alpha Plc
Unadjusted Trial Balance
December 31, 2020
Cash 2,300 0
0
A/Receivable 12,500 0
0
Prepaid Insurance 5,600 0
0
Merchandise Inventory 23,700 0
0
Supplies 5,700 0
0
Equipment 17,300 0
0
n.
Acc. Depr _ Equipment 1,500 00
A/Payable 3,500 00
Notes Payable 19,600 00
Sales Tax Payable 3,400 00
Capital- Ordinary shares 25,600 00
Dividend 1,000 0
0
Sales 110,200 00
Sales Returns & Allowances 3,100 0
0
Sales Discounts 2,300 0
0
Purchases 67,800 0
0
Purchase Returns & Allowances 1,200 00

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 Purchase Discounts 1,300 00
Freight In 3,900 0
0
Salary Expense 11,400 0
0
Miscellaneous Expense 9,700 0
0
Totals 166,300 0
0
166,300 00
Additional Information’s
a) The ending merchandise inventory amounts Birr 18,500.
b) Accrued salary expense on December 31, 2020 amounts Birr 3,500.
c) The prepaid insurance reported in the trial balance is amount paid on January 1, 2020 .This amount
applies for four years starting from the date of payment.
d) Supplies on hand amounts Birr 3,100 as of December 31, 2020
e) The depreciation expense for the equipment on December 31, 2020 amounts Birr 500.
Required: Prepare the following items for Alpha Plc
1. Ten column work sheet
2. income statement, statements of retained earnings and statements of financial position
3. All the necessary adjusting & closing entries.

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 1. Ten Column Worksheet
Alpha Plc
Worksheet
December 31, 2020
Account titles Trial balance Adjustments Adjusted trial Income Balance
balance statement sheet
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 2,300 2,300 2,300
Account Receivable 12,500 12,500 12,50
0
Prepaid Insurance 5,600 (c)1400 4,200 4,200
Merchandise Inventory 23,700 (a)18,50 (a)23,700 18,500 18,50
0 0
Supplies 5,700 (d)2,600 3,100 3,100
Equipment 17,300 17,300 17,30
0
Acc .Dep. –Equipment 1,500 (e)500 2,000 2000
Account Payable 3,500 3,500 3,500
Notes Payable 19,60 19,60 19,600
0 0
Sales Tax Payable 3,400 3,400 3,400
share capital-ordinary 25,60 25,60 25,600
0 0
Dividend 1000 1000 1000
Sales 110,2 110,2 110,200
00 00
Sales Returns & Allowance 3,100 3,100 3,100

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Sales Discount 2,300 2,300 2,300
Purchase 67,800 67,800 67,800
Purchase Returns & Allowance 1,200 1,200 1,200
Purchase Discount 1,300 1,300 1,300
Freight In 3,900 3,900 3,900
Salary Expense 11,400 (b)3,500 14,900 14,900
Miscellaneous Expense 9,700 9,700 9,700
Tot 166,300 166,3
als 00
Income Summary (a)23,70 (a)18,500 23,700 18,50 23,700 18,500
0 0
Insurance Expense (c)1400 1,400 1,400
Supplies Expense (d)2,600 2,600 2,600
Depreciation Expense (e)500 500 500
Salary Payable (d)3,500 3,500 3,500
50,200 50,200 188,800 188,8 129,90 131,200 58,9 57,600
Totals 00 0 00
Net Income 1,300 1,300
131,20 131,200 58,9 58,900
Balance 0 00

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 Note for the worksheet:
Both the debit of Birr 23,700 and credit of Birr 18,500 made to the income
summary account are extended to the adjusted trial balance and income
statement columns. This is the only time that the individual figures, rather than
the net amount, are extended on the worksheet because the individual amounts
are needed for the calculation of cost of merchandise sold on the income
statement.

2. Multiple Step Income Statement

Alpha Plc
Income Statement
For The Year Ended December 31, 2020
Revenues from sales:
Sales …………………………………………………………………110,200
Less: Sales Return & Allowance…………………… 3,100
Sales Discount………………………………... 2,300 (5,400)
Net Sales…………………………………………………….. …………………Birr 104,800
Less: Cost Of Merchandise Sold:
Merchandise Inventory Jan 1, 2020 ……………………………… 23,700
Purchase…………………………………………… 67,800
Less: Purchase Return &Allowance…… 1,200
Purchase Discount……………… 1,300 (2,500)
Net Purchases ……………………………………… 65,300
Add: Freight in……………………………………… 3,900
Cost Of Merchandise Purchase……………………………………69,200
Merchandise Available For Sale ………………………………...... 92,900
Less: Merchandise Inventory Dec 3 1, 2020 ………………… (18,500)
Cost Of Merchandise Sold………………………………………………………Birr
74,400
Gross Profit ………………………………………………………….Birr
30,400
Less: Operating Expenses:
Salary Expense …………………………………… 14, 900
Supplies Expense………………………………… 2,600
Insurance Expense……………………………… 1,400
Depreciation Expense-Equipment……………… 500
Miscellaneous Expense ………………………… 9,700
Total Operating Expense………………………………………………………….
(29,100)
Net Income ………………………………………………………….Birr
1,300

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3. Statements of retained earning
Alpha Plc
Statement of retained earning
For The Year Ended December 31, 2020
Retained earnings 1, 2020………………………………………………0
Add: Net income…………………………. 1,300
Less: Dividend …………………………… (1000)
Retained earnings December 31, 2020……………………………….Birr 300

4. Statements of financial position

Alpha Plc
Statements of financial position
As of December 31, 2020

Assets:
Equipment ……………………………………. 17,300
Less: Acc. Depp_ Equipment…………………. (2,000)
15,300
Supplies ………………………………………………………………….….. 3,100
Merchandise inventory………………………………………………………… 18,500
Prepaid insurance………………………………………………………………... 4,200
A/Receivable………………. ……………………………………….……………12,500
Cash ………………………………………………………………………………Birr 2,300
Total assets ……………………………………..……………………………… Birr
55,900
Owner’s equity:
Share Capital, ordinary December 31, 2012…………………………………
25,600
Retained earning ………………………………………………………………………300
Liabilities:
N/P……………………………………………. 19,600
Sales tax payable …………………………….. 3,400
Salaries payable……………………………… 3,500
A/P………………………………………….... 3,500
Total liabilities……………………………………………………… Birr 30,000
Total liabilities& owner’s equity ………………………… Birr
55,900

5. The necessary adjusting & closing entries

Adjusting entries:

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a) Income summary……………………………Birr 23,700
Merchandise inventory ……………………………. Birr 23,700
Merchandise inventory……………………..Birr18, 500
Income summary………………………………. Birr 18,500
b) Salary expense……………………………..Birr 3,500
Salary payable……………………………………… Birr 3,500
c) Insurance expense……………………….Birr 1, 400
Prepaid insurance…………………………… Birr 1,400
d) Supplies expense……………………… Birr 2,600
Supplies…………………………………………. Birr 2,600
e) Depreciation expense…………………… Birr 500
Acc. Dep.-equip………………………………… Birr 500

Closing entries:

a) Sales …………………………………………… Birr 110,200

Purchase Returns & Allowances……………………. 1,200
Purchase Discounts……………………………………1,300
Income Summary …………………………………………… Birr
112,700

b) Income Summary ……………………………………… Birr 106,200

Sales Returns &Allowance…………………………………Birr
3,100
Sales Discount…………………………………………………
2,300
Purchases………………………………………………………
67,800
Freight In……………………………………………………. .
3,900
Salary Expense ………………………………………………..
14,900
Insurance Expense …………………………………………….
1,400
Supplies Expense ……………………………………………
2,600
Depreciation Expense………………………………………
500
Miscellaneous Expense………………………………………..
9,700
c) Income Summary ……………………………………… Birr 1,300
retained earnings ………………………………………Birr 1,300

d) Retained earnings…………………………………………… Birr 1,000

dividend …………………………………………………Birr 1,000

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The following transactions were completed by Montrose Company during May of the current
year. Montrose Company uses a perpetual inventory system.
Transactions
May 3. Purchased merchandise on account from Floyd Co., $4,000, terms FOB shipping point,
2/10, n/30, with prepaid transportation costs of $120 added to the invoice.
5. Purchased merchandise on account from Kramer Co., $8,500, terms FOB destination, 1/10,
n/30.
6. Sold merchandise on account to C. F. Howell Co., list price $4,000, trade discount 30%, terms
2/10, n/30. The cost of the merchandise sold was $1,125.
8. Purchased office supplies for cash, $150.
10. Returned merchandise purchased on May 5 from Kramer Co., $1,300.
13. Paid Floyd Co. on account for purchase of May 3, less discount.
14. Purchased merchandise for cash, $10,500.
15. Paid Kramer Co. on account for purchase of May 5, less return of May 10 and discount.
16. Received cash on account from sale of May 6 to C. F. Howell Co., less discount.
19. Sold merchandise on nonbank credit cards and reported accounts to the card company,
American Express, $2,450. The cost of the merchandise sold was $980.
22. Sold merchandise on account to Comer Co., $3,480, terms 2/10, n/30. The cost of the
merchandise sold was $1,400.
24. Sold merchandise for cash, $4,350. The cost of the merchandise sold was $1,750.
25. Received merchandise returned by Comer Co. from sale on May 22, $1,480. The cost of the
returned merchandise was $600.
31. Received cash from card Company for nonbank credit card sales of May 19, less $140
service fee.
Instructions
1. Journalize the preceding transactions.
2. Journalize the adjusting entry for merchandise inventory shrinkage, $3,750.
Solution
1. May 3 Merchandise Inventory 4,120
Accounts Payable—Floyd Co. 4,120
5 Merchandise Inventory 8,500
Accounts Payable—Kramer Co. 8,500
6 Accounts Receivable—C. F. Howell Co. 2,800
Sales 2,800
[$4,000 _ (30% _ $4,000)]
6 Cost of Merchandise Sold 1,125
Merchandise Inventory 1,125
8 Office Supplies 150
Cash 150
10 Accounts Payable—Kramer Co. 1,300
Merchandise Inventory 1,300
13 Accounts Payable—Floyd Co. 4,120
Merchandise Inventory 80
Cash 4,040
[$4,000 _ (2% _ $4,000) _ $120]
14 Merchandise Inventory 10,500

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 Cash 10,500
15 Accounts Payable—Kramer Co. 7,200
Merchandise Inventory 72
Cash 7,128
[($8,500 _ $1,300) _ 1% _ $72;
$8,500 _ $1,300 _ $72 _ $7,128]
16 Cash 2,744
Sales Discounts 56
Accounts Receivable—C. F. Howell Co. 2,800
19 Accounts Receivable—American Express 2,450
Sales 2,450
19 Cost of Merchandise Sold 980
Merchandise Inventory 980
22 Accounts Receivable—Comer Co. 3,480
Sales 3,480
22 Cost of Merchandise Sold 1,400
Merchandise Inventory 1,400
24 Cash 4,350
Sales 4,350
24 Cost of Merchandise Sold 1,750
Merchandise Inventory 1,750
25 Sales Returns and Allowances 1,480
Accounts Receivable—Comer Co . 1,480
25 Merchandise Inventory 600
Cost of Merchandise Sold 600
31 Cash 2,310
Credit Card Expense 140
Accounts Receivable—American Express 2,450
2. May 31 Cost of Merchandise Sold 3,750
Merchandise Inventory 3,750

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