[wongyl]

Hi,

Thanks alot for your help. The reason why i asked this particular reason is that i am not sure what goes into the cost of inventories.

The standard formula is always: Open Inv + Net Purchase – Ending Inv = CoGS with FIFO and etc as a means of recording purchases and cost of goods sold.

They do not mentioned about how to value the cost of good sold with reference to these contra accounts like cash discount and purchase returns/allowance, the BPP book that i have also did not mention anything on how to deal with these contra accounts with regards to costing of inventories

The confusion is the ‘Net Purchase’ in the formula above which is equal to Purchase – cash discount – Purchase return/allowance, hence the though that these contra accounts should be included in the valuing of inventories.

Very grateful to your quick answer, will be looking into chapter 9 and chapter 16 of yours.

[wongyl]

Hi,

According to book: Basic Accounting Concepts by Gregory R Morstyn

Perpetual method:

Company purchase 1500 of inventory:

Inventory 1500
AP 1500

Company paid within discount period and receives 2% discount:

AP 1500
Inventory 30
Cash 1470

Based on the above, i believed that cash discount is included in the valuing of inventory for perpetual method, please do correct me if i am wrong.

If so, the reason why cash discount is not included for periodic method, i would assumed is that the cash discount (a from of contra revenue account) in previous period has already been recognized as an asset.

Really appreciate your answer that clears my doubts.

[wongyl]

Hi,

I have watch some of your videos along with the notes but i do have some difficulties comprehending your videos due to the accent.

[Author]

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