Explain merchandise in transit, Accounting Basics

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Q. Explain Merchandise in transit?

Merchandise in transit is merchandise in the hands of a shipment company on the date of a physical inventory. As stated above buyers should record merchandise in transit at the end of the accounting period as a purchase if the goods were shipped FOB shipping point as well as they have received title to the merchandise. Generally the goods belong to the party who ultimately tolerate the transportation charges.

When accounting personnel know the beginning as well as ending inventories and the various items making up the net cost of purchases they are able to determine the cost of goods sold. To exemplify suppose the subsequent account balances for Hanlon Retail Food Store as of 2010 December 31

Merchandise Inventory, 2010 January 1                     $ 24,000          Dr.

Purchases                                                                    167,000           Dr.

Purchase Discounts                                                     3,000               Cr.

Purchase Returns and Allowances                              8,000               Cr.

Transportation-In                                                        10,000             Dr.

By taking a physical inventory Hanlon resolute the 2010 December 31 merchandise inventory to be USD 31000. Hanlon then computed its cost of goods sold as shown in Exhibit 38. This calculation appears in a section of the income statement directly below the calculation of net sales.


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