Financial Accounting: An Integrated Statements Approach, 2nd Edition

When the seller prepays transportation costs for the buyer, any sales discount

applies only to the amount of the merchandise sale. For example, if Golden Com-

pany pays within the discount period, it would remit cash of $8,340 [$8,000

($8,0002%)$500].

Sales Taxes

Almost all states and many other taxing units levy a tax on sales of merchandise.^6 The

liability for the sales tax is incurred when the sale is made.

At the time of a cash sale, the seller collects the sales tax. When a sale is made on

account, the seller charges the tax to the buyer by debiting Accounts Receivable. The

seller credits the sales account for the amount of the sale and credits the tax to Sales

Taxes Payable. Normally on a regular basis, the seller pays the amount of the sales tax

collected to the taxing unit. The seller records such a payment by debiting Sales Taxes

Payable and crediting Cash.

228 Chapter 5 Accounting for Merchandise Operations

Q.$8,000 of merchandise

is purchased 1/15, n/30,

FOB shipping point. The

seller pays $500 shipping

charges as an accommo-

dation. If paid within the

discount period, how much

will the buyer remit?

A.$8,420 [$8,000 

($8,000 1%)$500]

Illustrate the dual nature

of merchandising

transactions.

6

6 Businesses that purchase merchandise for resale to others are normally exempt from paying sales taxes

on their purchases. Only final buyers of merchandise normally pay sales taxes.

pays the transportation cost of $500 and adds it to the invoice. The cost of the mer-

chandise sold is $4,800. Online records these transactions as follows:

SCF BS IS

—AcSEc Rc

—ATSET Ec

OT AcT —

Jan. 14 Accounts Receivable—Golden Company 8,000

Sales 8,000

14 Cost of Merchandise Sold 4,800

Merchandise Inventory 4,800

14 Accounts Receivable—Golden Company 500

Cash 500

The Cost of Employee Theft

HOW BUSINESSES MAKE MONEY

A recent survey reported that the 24 largest retail

store chains, including JCPenney, have lost over

$2 billion to shoplifting and employee theft. Of this

amount, only 4.6% of the losses resulted in any re-

covery. The stores apprehended over 370,000

shoplifters and 35,500 dishonest employees during

2003.Approximately one out of every 28 employ-

ees was apprehended for theft from his or her em-

ployer. Each dishonest employee stole approxi-

mately 4.8 times the amount stolen by shoplifters

($660 vs. $137).

Source:Jack L. Hayes International, Sixteenth Annual

Retail Theft Survey, 2004.

DUAL NATURE OF MERCHANDISE TRANSACTIONS

Each merchandising transaction affects a buyer and a seller. In the illustration on the next

page, we show how the same transactions would be recorded by both the seller and

the buyer. In this example, the seller is Scully Company and the buyer is Burton Co.