Question

How to put merchandise inventory in T accounts

The following amounts summarize Transeer Company’s merchandising activities during 2020. Post the activities in the following T-accounts and calculate the account balances. Assume that the company uses perpetual inventory system.

Cost of merchandise sold to customers in sales transactions	$	190,000
Merchandise inventory balance, Dec. 31, 2019		40,000
Invoice cost of merchandise purchases		196,000
Shrinkage determined on Dec. 31, 2020		36,000
Cost of transportation-in		2,400
Cost of merchandise returned by customers and restored to inventory		2,700
Purchase discounts received		2,100
Purchase returns and allowances received		5,100

Answer 1

Dr                         Merchandise Inventory Account                                      Cr
Particulars	Amount	Particulars	Amount
Bal b/d	40000	COGS	190000
Purchases	196000	Purchase Returns and Allowances	5100
Transportation	2400	Purchase Discount	2100
COGS Returned	2700	Inventory Lost	36000
		Bal c/d	7900
	241100		241100
General Rule
The Transaction that either reduces the cost or volume of inventory should be credited and transaction that increases the cost or volume of the inventory should be debited. Inventory is an asset. So Debit when inventory comes and credit when inventory goes.
Notes
1. Transportation expense incurred for bringing to goods purchased should form part of the inventory cost
2. Purchase Discount is a discount received for making early payment to the supplier. This portion is already included in the purchase cost. When discount is received this discount reduces the inventory cost.

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