It’s important for both parties to
know that when goods are sold, what are the price of the item and the timing of
the payment. It’s also good to know what are the stipulations if any that apply
to the return of merchandise. Different companies quote their prices by using
different methods. A lot of merchants will generally quote the price that they
will like to sell it. On the other hand, some merchants such as manufacturers
or wholesalers will usually quote their prices as a percentage of their
catalogue prices, generally around 30 percent or more, and this reduction I
known as a trade discount. For example, if something is listed as $1,500 with a
trade discount of 30 percent or $450 then the seller writes the sell as $1050,
and the buyer records it as $1050. From
there the seller can raise or lower the price depending on the quantity that is
being sold. The terms of sales are usually on the sale invoice and tell the type
of terms to the agreement. In a lot of industries the payment is expected
within a short time of the purchase. If
it’s for 15 days then the invoice will have “n/15” (net 15) or “n/20” (net 20)
which means that the amount is due 15 or 20 days later. In most industries a
discount is usually offered for an early payment. This type of discount is
called a sale discount which has the purposes for increasing a seller liquidly
by reducing the amount of money associated with accounts receivable. An invoice with a discount may look like
“3/10, n/20,” which that the purchaser can pay within 20 days and receive a 30
percent discount, or they can pay within twenty days and pay the full price for
it. If you have noticed, the amount of discounts have been decreasing because
one, its quite expensive to the seller, and two, to the customer it appears
that they are not receiving a bargain even though they may. In some industries
it is expected for the seller to pay for some charges, and others it may not.
One example is in the freight industry. FOB shipping point basically means that
the buyer is paying for all of the shipping expenses. So if you purchase
something heavy and the sales agreement says FOB then that means that you are
responsible for the shipping charges. However, FOB destination is the opposite
and means that the seller pays the shipping or transportation expenses once it
is delivered. A lot of retailers will give buyers the opportunity to charge the
shipping expenses to dome type of third part service. The five most used credit cards are:
ü
American Express
ü
Visa
ü
Discovery Card
ü
Diners Club
ü
MasterCard
The customer is given credit by the lender or credit
card issuer, and receives a shiny plastic card to charge their purchases
to. Once the seller accepts the card,
the invoice is automatically prepared and the seller receives money into their
account. If the seller is offering a
discount, the discount is recorded as an expense to the seller. Let’s not
forget that the seller’s merchant also deducts money for each transaction, and
that money that is deducted is also recorded as an expense. Let’s not forget
that you also have something that is known as freight in, also called transportation in. this is the shipping
costs that are associated with receiving particular merchandise, and is
generally included with the cost of goods sold.
A lot of companies like to include the cost of freight in with the cost
of the merchandise, because it is a relatively small amount of money. Sometimes the buyer is expected to pay the
freight in and it is reported as an increase in the accounts payable. Also, if
the seller experienced a return because of the wrong item shipped, or for a
damaged/low quality product, then the buyer may be granted a refund for cash or
for credit back to their account. The
returned purchased is deleted from the merchandise inventory account under the
perpetual system. Sometimes sellers will pay the delivery or the freight out
costs hoping that it will increase their sales. These expenses are gathered in
the freight out expense, or commonly
known as delivery expense. This is viewed as a selling expense on the income
statement. When a customer is
dissatisfied with a product, they will usually return it and these costs are
gathered in the sales returns and
allowances account which gives the management a more flexible estimate of
what products to keep and which ones to discard of. This account deducts sales
from the income statement. A
merchandising company can have inaccurate records as well as experiencing a
huge loss profits if they don’t have reliable accounting records. The management is the one I charge for making
the system for internal control. Internal control is the policies that a
management puts to action to make sure that the financial information is
reliable. This is the process that the
management takes to protect their assets. It also confirms that the employees
have conformed to legal requirements so that they will do the best job possibly
for the company. Since the managers are
the ones in charged of the structure of a business they must report their goals
and progress to the “Report Management” of a company’s annual report to
stockholders. To be successful with
internal control, management uses five parts of internal control. They are: Control environment, risk
assessment, information and communication, control activities, and
monitoring. Control environment deals with the overall attitude, and actions of
a management system. It also includes
the management ethics, integrity, and philosophy. The employees must also be
properly trained and very knowledgeable in the field their participating
in. The risk assessment is the analysis of the risk of an environment and
how to monitor them. These include screening out thieves in a retail store, or
employees that are likely to steal from a company. Next, information and communication correlates to the accounting system
by establishing management, and reporting a company’s transactions. Control activities are the restraints
that management puts in place to make sure that instructions are properly
carried out. Last, monitoring involves
the periodic assessment to make sure that all policies are enforced.
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