Freight In and Purchases Returns and Allowances are deducted from Purchases to determine the cost of goods sold.
Question
Freight In and Purchases Returns and Allowances are deducted from Purchases to determine the cost of goods sold.
Solution
No, the statement is not entirely correct. Here's the correct step-by-step process:
- Start with the beginning inventory.
- Add the cost of purchases. This includes the cost of all items purchased for resale during the accounting period.
- Add freight-in costs. These are the costs associated with transporting the goods to your location. They are considered part of the cost of inventory.
- Subtract purchase returns and allowances. These are reductions in the cost of purchases due to items being returned to suppliers or allowances given by suppliers for damaged goods.
- Subtract the ending inventory. This is the cost of all items still available for sale at the end of the accounting period.
The result is the cost of goods sold (COGS). This is the cost of all items that were sold during the accounting period. It does not include the costs of selling or administrative expenses.
Similar Questions
Assuming a periodic inventory system is used, freight charges on merchandise purchases should be debited to:Multiple Choicethe Freight In account.the Purchases account.the Accounts Payable account.the creditor's account in the subsidiary ledger.
Freight costs incurred by a seller on merchandise sold to customers will cause an increase:Group of answer choicesin the selling expenses of the buyer.in operating expenses for the seller.to the cost of sales of the seller.to a discount received account of the seller.
The seller bears the transportation cost of merchandise sold if the terms of shipment are
Under a perpetual inventory system, acquisition of merchandise for resale is debited to the: Group of answer choices Cost of Sales account. Purchases account. Supplies account. Inventory account.
Select all that applyThe buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below.Multiple select question.Terms FOB destination means that the seller is responsible for shipping costs.When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges.Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business.When the shipping costs are the responsibility of the seller, then the Merchandise Inventory account is debited.Terms FOB shipping point means the seller of the goods is responsible for freight charges.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.