Accounting for retail operations

Question 1

What are entries for purchases under a perpetual inventory system?

Answer 1

Credit purchase:
Inventory (asset) increase => Db
Account Payable (liabilities) increase => Cr

Cash purchase
Inventory (asset) increase => Db
Cash (asset) decrease => Cr

Question 2

What are entries for purchases returns and allowances?

Answer 2

Credit purchase:
Account payable (liabilities) decrease => Db
Inventory (asset) decrease => Cr

Cash purchase (2 entries)
Account receivable (asset) increase => Db
Inventory (asset) decrease => Cr

Cash (asset) increase => Db
Account receivable (asset) decrease => Cr

Question 3

What is the definition of the term “purchase returns”?

Answer 3

The goods that purchaser receive may be damaged or inferior quality. In such cases, the purchaser may return the goods to the seller. The purchaser is granted credit if the sale was made on credit or cash refund if the purchase was for cash

Question 4

What is the definition of the term “purchase allowances”?

Answer 4

The purchaser may choose to keep the defective goods if the seller is willing to grant an allowance from the purchase price. This is called purchase allowance

Question 5

What is the meaning of the term “FOB Delivery point”?

Answer 5

FOB delivery point means that goods are placed free on board by the seller, and the buyer pays the freight cost

Question 6

What is the meaning of the term “FOB destination”?

Answer 6

FOB destination means that the goods are placed free on board to the buyer’s place and the seller pays the freight

Question 7

What is the entry to record “FOB destination”?

Answer 7

Freight in (expenses) increase => Db
Cash (asset) decrease => Cr

Question 8

What is the entry to record “FOB delivery”?

Answer 8

Freight-out/Delivery expenses (expenses) increase => Db

Cash (asset) decrease => Cr

Question 9

What “discount received” means?

Answer 9

When the seller of goods grants a payment discount to a buyer, the amount of the granted payment is called “discount received” by the buyer

Question 10

What is the entry to record a “discount received”?

Answer 10

No entry: 1
No accounts: 3

Account payable (liability) decrease => Db
Cash (asset) decrease => Cr
Discount received (income) increase => Cr

Question 11

What is the entry for sales under a perpetual inventory system?

Answer 11

No entry: 2
No accounts: 4

Entry for recording the sales 
Account receivable (asset) increase => Db
Sale (income) increase => Cr

Entry for cost of sales
Cost of sales (expenses) increase => Db
Inventory (asset) decrease => Cr

Question 12

What is the entry to record credit/cash for returned goods that are not faulty or damaged?

Answer 12

No entry: 2
No accounts: 4

Sales returns and allowances (contra income) increase => Db
Account receivable (asset) decrease => Cr

Inventory (asset) increase => Db
Cost of sales (expenses) decrease => Cr

Question 13

What is the entry to record credit/cash for returned goods that are faulty or damaged?

Answer 13

No entry: 2
No accounts: 4

Sales returns and allowances (contra revenue) increase => Db
Account receivable (assets) decrease => Cr

Inventory write down (expenses) increase => Db
Cost of sales (expenses) decrease => Cr

Question 14

What is the nature of “Sales Returns and Allowances” account?

Answer 14

Sales Returns and Allowances is a contra revenue account. The normal balance of Sales Returns and Allowances is a debit

Question 15

What are entries for sales discounts?

Answer 15

No entry: 1
No accounts: 3

Cash (asset) increase => Db
Sales discounts (contra revenue) increase => Db
Account Receivable (asset) decrease => Cr

Question 16

What type of is the GST?

Answer 16

Indirect tax

Question 17

What “taxable supplies” means?

Answer 17

Goods and services that attract a GST are referred to as taxable supplies

Question 18

What are included in “GST-free supplies”?

Answer 18

Food, education, health services and exported goods

Question 19

What are included in “Input taxed supplies”?

Answer 19

Input taxed supplies include financial services and residential rents

Question 20

What is the entry to record GST paid when purchasing inventory?

Answer 20

No entry: 1
Accounts: 3

Account payable (liability) increase => Cr
GST paid (asset) increase => Db
Inventory (asset) increase => Db

Question 21

What is the nature of “GST paid” account and why

Answer 21

GST Paid account represents an asset, a future economic benefit for the business, as this amount can be offset against any future GST

Question 22

What is the entry to record GST collected when selling inventory?

Answer 22

No entry: 1
Accounts: 3

Account receivable (asset) increase => Db
GST collected (liability) increase => Cr
Sales (revenue) increase => Cr

Question 23

What is the entry to record remitting GST to the ATO, If the amount GST paid not exceeds the amount GST collected?

Answer 23

No entry: 1
Account: 3

GST collected (liability) decrease => Db  
Cash (asset) increase => Cr
GST paid (asset) decrease => Cr

Question 24

What is the entry to record remitting GST to the ATO, If the amount GST paid exceeds the amount GST collected?

Answer 24

Cash (asset) increase => Db
GST collected (liability) decrease => Db
GST paid (asset) decrease => Cr