What is a purchase return? How does a purchase allowance differ from a purchase return?
Purchase returns are the service provided to the customers to return the goods bought from the seller.
Purchase allowances are the additional incentives granted by a business to the purchasers.
In accounting, the term “purchase” refers to the acquisition of goods or services for a fixed consideration that is meant to be resold and help in generating the revenues for a business concern.
Purchase returns refer to the facility provided by the businesses to their customers for returning the purchased goods due to any damage, defect, or any other reason.
On the other hand, purchase allowances are the additional incentives allowed by a business to a buyer to keep the goods that are not “as ordered.”
Both purchase returns and purchase allowances decrease the cost of goods sold of a business concern.
Journalize the following transactions that occurred in January 2018 for Mike’s Amusements. Assume Mike’s uses the gross method to record sales revenue. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.
Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, $5,000. Terms 1/10, n/EOM, FOB shipping point.
6 Paid freight bill of $150 on January 4 purchase.
8 Returned half the inventory purchased on January 4 from Vanderbilt Company.
10 Sold merchandise inventory for cash, $1,100. Cost of goods, $440. FOB destination.
11 Sold merchandise inventory to Gilmore Corporation, $10,100, on account, terms of 3/10, n/EOM. Cost of goods, $5,555. FOB shipping point.
12 Paid freight bill of $30 on January 10 sale.
13 Sold merchandise inventory to Cadet Company, $8,800, on account, terms of 3/10, n/45. Cost of goods, $4,400. FOB shipping point.
14 Paid the amount owed on account from January 4, less return and discount.
18 Purchased inventory of $4,600 on account from Roberts Corporation. Payment terms were 1/10, n/30, FOB destination.
20 Received cash from Gilmore Corporation, less discount.
26 Paid amount owed on account from January 18, less discount.
28 Received cash from Cadet Company.
29 Purchased inventory from Silk Corporation for cash, $12,000, FOB shipping point. Freight in paid to shipping company, $240.
Click Computers has the following transactions in July related to purchasing and sale of merchandise inventory.
July 1 Purchase of $20,500 worth of computers on account, terms of 2/10, n/30.
3 Return of $4,000 of the computers to the vendor.
9 Payment made on the account.
12 Sold computers on account for $8,000 to a customer, terms 3/15, n/30.
26 Received payment from customer on balance due.
Journalize the transactions for Click Computers assuming that the company uses the periodic inventory system.
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