IMPORTANT POINT TO REMEMBER: THE WORD IMPOSSIBLE SAYS IM POSSIBLE Important points to remember for Retail Accounting 1.

FREIGHT ILLUSTRATIVE PROBLEM: On July 1, 2012, Lucky Ducky purchased 200,000 worth of goods on account from Marie Claire. Payment of freight costs amounted to 5% of the invoice price. Account is due to be paid one month after the date of purchase.
SHIPPING TERMS FOB SHIPPING POINT, Freight Collect -Buyer gives payment of freight to shipping company(FOB Shipping Pt.) Buyer shoulders payment for freight (Freight Collect) BOOKS OF LUCKY DUCKY (THE BUYER) Date of Purchase Purchases 200,000 Accounts Payable 200,000 Date of Payment for Freight Costs Freight-in Cash 10,000 Date of Payment Accounts Payable Cash 200,000 10,000 BOOKS OF MARIE CLAIRE (THE SELLER) Date of Sale Accounts Receivable 200,000 Sales 200,000 Date of Payment for Freight Costs No entry needed. Date of Receipt of Payment Cash 200,000 Accounts Receivable 200,000 Date of Sale Accounts Receivable 200,000 Sales 200,000 Date of Payment for Freight Costs Freight-out 10,000 Cash 10,000 Date of Receipt of Payment Cash 200,000 Accounts Receivable 200,000 Date of Sale Accounts Receivable 200,000 Sales 200,000 Date of Payment for Freight Costs Accounts Receivable 10,000 Cash 10,000

200,000

FOB DESTINATION, Freight Prepaid -Seller gives payment of freight to shipping company(FOB Destination) Seller shoulders payment for freight(Freight Prepaid)

Date of Purchase Purchases 200,000 Accounts Payable 200,000 Date of Payment for Freight Costs No entry needed. Date of Payment Accounts Payable Cash 200,000

200,000

FOB SHIPPING POINT, Freight Prepaid - Buyer gives payment of freight to shipping company(FOB Shipping Pt.) Seller shoulders payment

Date of Purchase Purchases 200,000 Accounts Payable 200,000 Date of Payment for Freight Costs Freight-in 10,000 Accounts Payable 10,000

for freight(Freight Prepaid)

Date of Payment Accounts Payable Cash 210,000

210,000

Date of Receipt of Payment Cash 210,000 Accounts Receivable 210,000 Date of Sale Accounts Receivable 200,000 Sales 200,000 Date of Payment for Freight Costs Freight-out 10,000 Accounts Receivable 10,000 Date of Receipt of Payment Cash 190,000 Accounts Receivable 190,000

FOB DESTINATION, Freight Collect - Seller gives payment of freight to shipping company(FOB Destination) Buyer shoulders payment for freight (Freight Collect)

Date of Purchase Purchases 200,000 Accounts Payable 200,000 Date of Payment for Freight Costs Accounts Payable 10,000 Cash 10,000 Date of Payment Accounts Payable Cash 190,000

190,000

2. PURCHASE DISCOUNT PRACTICE PROBLEMS (TRY SOLVING THEM FIRST AND THEN CHECK YOUR ANSWERS AFTERWARDS. SOLUTION AND ANSWERS ARE PROVIDED AFTER THE LAST PROBLEM.) PROBLEM A INVOICE DATE: 01/01/12 LIST PRICE TRADE (LP) DISCOUNT RATE 10% 120,000 FREIGHT RETURNS TERMS FOB Shipping Point; Freight Collect 5,000

PAYMENT DATE: 01/11/12 TRADE INVOICE PRICE FREIGHT COST DISCOUNT (IP) (TD) ? ? 3,000 CREDIT TERMS CASH AMOUNT OF DISCOUNT CASH PAYMENT 2/10,n/30 ? ?

PROBLEM B INVOICE DATE: 02/07/12 LIST PRICE TRADE (LP) DISCOUNT RATE 200,000 10%, 20% FREIGHT RETURNS

PAYMENT DATE: 02/10/12 TRADE INVOICE PRICE FREIGHT COST DISCOUNT (IP) (TD) ? ? 500 CREDIT TERMS CASH AMOUNT OF

TERMS FOB DESTINATION ; Freight Prepaid 1,000 3/15,n/35

DISCOUNT ?

CASH PAYMENT ?

PROBLEM C INVOICE DATE: 03/17/12 LIST PRICE TRADE (LP) DISCOUNT RATE 5%, 10%,15% 430,000 FREIGHT RETURNS TERMS FOB SHIPPING POINT; Freight Prepaid 4,500

TRADE DISCOUNT (TD) ? CREDIT TERMS 5/10, 3/15, 1/25, n/45

PAYMENT DATE: 03/29/12 INVOICE PRICE FREIGHT COST (IP) ? CASH DISCOUNT ? 2,500 AMOUNT OF CASH PAYMENT ?

PROBLEM D INVOICE DATE: 04/02/12 LIST PRICE TRADE (LP) DISCOUNT RATE 140,000 2%, 4%,5%,10% FREIGHT RETURNS TERMS FOB DESTINATION ; Freight Collect ANSWERS: 2,700

TRADE DISCOUNT (TD) ? CREDIT TERMS 4/20 EOM, n/60

PAYMENT DATE: 05/19/12 INVOICE PRICE FREIGHT COST (IP) ? CASH DISCOUNT ? 2,700 AMOUNT OF CASH PAYMENT ?

PROBLEM A

INVOICE DATE: 01/01/12 LIST PRICE TRADE (LP) DISCOUNT RATE 10% 120,000 FREIGHT RETURNS TERMS

FOB Shipping 5,000 Point; Freight Collect SOLUTION: Trade Discount(TD)=List Price (LP)x Trade Discount Rate (TDR) 12,000= 120,000 x .10 Invoice Price(IP)=List Price (LP)-Trade Discount(TD) 108,000= 120,000-12,000 Cash Discount(CD)=[Invoice Price-Returns]*Cash Discount Rate 2,060= [108,000-5,000]*.02 Amount of Cash Payment=Invoice Price-Returns-Cash Discount 100,940= 108,000-5,000-2,060

PAYMENT DATE: 01/11/12 TRADE INVOICE PRICE FREIGHT COST DISCOUNT (IP) (TD) 12,000 108,000 3,000 CREDIT TERMS CASH AMOUNT OF DISCOUNT CASH PAYMENT 2/10,n/30 2,060 100,940

PROBLEM B INVOICE DATE: 02/07/12 LIST PRICE TRADE (LP) DISCOUNT RATE 200,000 10%, 20% FREIGHT RETURNS TERMS FOB DESTINATION ; Freight Prepaid 1,000

PAYMENT DATE: 02/10/12 TRADE INVOICE PRICE FREIGHT COST DISCOUNT (IP) (TD) 56,000 144,000 500 CREDIT TERMS CASH AMOUNT OF DISCOUNT CASH PAYMENT 3/15,n/35 4,290 138,710

SOLUTION: Trade Discount(TD)=List Price (LP)-Invoice price(IP) 56,000= 200,000-144,000 Invoice Price(IP)=List Price (LP)x(100%-Trade discount rate 1)x(100%-Trade Discount rate 2)

144,000= 200,000x[100%-10%]x[100%-20%] Cash Discount(CD)=[Invoice Price-Returns]*Cash Discount Rate 4,290= [144,000-1,000]*.03 Amount of Cash Payment=Invoice Price-Returns-Cash Discount 138,710= 144,000-1,000-4,290

PROBLEM C INVOICE DATE: 03/17/12 LIST PRICE TRADE (LP) DISCOUNT RATE 5%, 10%,15% 430,000 FREIGHT RETURNS TERMS

TRADE DISCOUNT (TD) 117,497.50 CREDIT TERMS

PAYMENT DATE: 03/29/12 INVOICE PRICE FREIGHT COST (IP) 312,502.50 CASH DISCOUNT 2,500 AMOUNT OF CASH PAYMENT 301,262.50

FOB 4,500 5/10, 9,240 SHIPPING 3/15, POINT; 1/25, Freight n/45 Prepaid SOLUTION: Trade Discount(TD)=List Price (LP)-Invoice price(IP) 117,497.50= 430,000-312,502.50 Invoice Price(IP)=List Price (LP)x(100%-Trade discount rate 1)x(100%-Trade Discount rate 2) 312,502.50= 430,000x[100%-5%]x[100%-10%]x[100%-15%] Cash Discount(CD)=[Invoice Price-Returns]*Cash Discount Rate 9,240= [312,502.50-4,500]*.03 Discount is only 3% because the interpretation of cash discounts should be in this manner: 5% CD, if paid within 1-10 days 3% CD, if paid within 11-15 days 1% CD, if paid within 16-25 days Amount of Cash Payment=Invoice Price-Returns-Cash Discount+ Freight Costs 301,262.50= 312,502.50-4,500-9,240+2,500

FOB SHIPPING POINT; Freight Prepaid- Buyer ang dapat mag-shoulder ng freight cost since FOB shipping point kaya lang binayaran na in advance ni seller ang shipping cost sa freight company. Kaya ung 2,500 inabono ni seller ay nakadagdag sa accounts payable ni buyer. Buyers Books Freight-in 2,500 Accounts Payable-Seller Sellers Books

2,500

Accounts Receivable-Buyer 2,500 Cash* 2,500 *Cash was paid to shipping company

PROBLEM D INVOICE DATE: 04/02/12 LIST PRICE TRADE (LP) DISCOUNT RATE 2%, 140,000 4%,5%,10% FREIGHT RETURNS TERMS

TRADE DISCOUNT (TD) 27,386.24 CREDIT TERMS

PAYMENT DATE: 05/19/12 INVOICE PRICE FREIGHT COST (IP) 112,613.76 CASH DISCOUNT 2,700 AMOUNT OF CASH PAYMENT 102,817.21

FOB 4/20 EOM, 4,396.55 2,700 DESTINATION n/60 ; Freight Collect SOLUTION: Trade Discount(TD)=List Price (LP)-Invoice price(IP) 27,386.24= 140,000-112,613.76 Invoice Price(IP)=List Price (LP)x(100%-Trade discount rate 1)x(100%-Trade Discount rate 2) 112,613.76= 140,000x[100%-2%]x[100%-4%]x[100%5%]x[100%-10%] Cash Discount(CD)=[Invoice Price-Returns]*Cash Discount Rate 4,396.55= [112,613.76-2,700]*.04 What does the credit term 4/20 EOM mean? Makakaavail ang buyer ng 4% discount if he paid within 20 days from the end of the month (EOM). In this example, the month of April ends on the 30 th, kaya 20 days from April 30 is from May 1-May 20.

Amount of Cash Payment=Invoice Price-Returns-Cash Discount-Freight Costs 102,817.21= 112,613.76-2,700-4,396.55-2,700 FOB DESTINATION; Freight Collect- Seller ang dapat mag-shoulder ng freight, ngunit ang buyer ang actual na nag-abot ng cash payment sa shipping company. Kaya nabawasan ang accounts payable ng buyer kay seller ng amount na 2,700. Buyers Books Accounts Payable-Seller 2,500 Cash* 2,500 *Cash was paid to shipping company Sellers Books

Freight-out Accounts Receivable-Buyer

2,500 2,500