ACTBAS2 Notes Formula for cash discount: List price/catalog price Less: Trade discount (Original price*trade discount

rate) Invoice price sales/purchases to be recorded Less: Downpayment Promissory note Accounts receivable/accounts payable original balance Less: Returns and allowances Basis for cash discount Cash discount discount rate) (basis for cash discount*cash xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

Accounts receivable/accounts payable balance upon full payment Less: Cash discount Amount to be collected/paid upon full payment

xxx xxx xxx

Freight 1. FOB Shipping point The buyer shoulders the freight cost or the cost of shipment. Ownership of goods or merchandise is already with the buyer from the point of shipment even if the goods are not yet received. a. Collect the buyer is the one who paid for the freight cost. b. Prepaid the seller is the one who paid for the freight cost. 2. FOB Destination point The seller shoulders the freight cost or the cost of shipment. Ownership of goods or merchandise is still with the seller from the point of shipment until they are received by the buyer. Ownership of the merchandise or goods ceases upon receipt of the buyer. a. Collect the buyer is the one who paid for the freight cost. b. Prepaid the seller is the one who paid for the freight cost.

Pro-forma entries: Shipping terms Seller's books: FOB Accounts shipping Receivable xxx point, prepaid Cash FOB shipping point, prepaid FOB shipping point, collect NO ENTRY

Buyer's books: Freight-in xxx Accounts Payable FOB shipping point, prepaid Freight-in xx x xx x xx x xx x

Cash FOB shipping point, collect FOB destination point, prepaid x xx xxx

Freight-out Cash FOB destination point, prepaid

NO ENTRY

FOB destination point, collect

Freight-out Accounts Receivable FOB destination point, collect

x xx xxx

Accounts Payable xxx Cash FOB destination point, collect

xxx

Example: Journalize the following transactions: On December 1, purchased merchandise amounting to 1,000,000. Issued promissory note for 400,000. Downpayment is 50% on remaining balance after deducting promissory note and the remaining with credit terms of 2/10, 1/15, n/30. Freight cost is 5,000, FOB destination point, collect. On December 2, made partial payment amounting to 100,000. On December 3, returned various merchandise amounting to 50,000. On December 4, paid the promissory note On December 5, paid the remaining balance of its account.