Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

A purchase allowance can be described as:

A discount given to customers for early payment of their accounts.

A reduction in the cost of goods purchased, granted by the seller due to defective or unsatisfactory merchandise, without returning the goods.

A return of goods by the buyer to the seller for a full refund.

An additional charge added to the purchase price for expedited shipping.

Previous problemNext problem

Verified step by step guidance

Understand the concept of a purchase allowance: A purchase allowance is a reduction in the cost of goods purchased, granted by the seller due to defective or unsatisfactory merchandise, without requiring the buyer to return the goods.

Differentiate between similar terms: A purchase allowance is not the same as a purchase discount (which is a reduction for early payment), a purchase return (which involves returning goods for a refund), or an additional charge for expedited shipping.

Recognize the accounting treatment: In financial accounting, a purchase allowance is recorded as a reduction in the cost of goods purchased, which decreases the total inventory cost or accounts payable.

Consider the impact on financial statements: A purchase allowance affects the buyer's inventory valuation and may also impact the seller's revenue recognition, depending on the terms of the allowance.

Apply the concept to real-world scenarios: Think of situations where a seller might offer a purchase allowance, such as when goods are damaged during shipping or do not meet quality standards, but the buyer decides to keep the goods.