MODEL LETTER OF REMITTANCE 572 Twelfth St., Madison, Wis., May 11, 19—. John Hoffman & Sons Co., East Water and Buffalo Sts., Milwaukee, Wis. Gentlemen: Inclosed you will find my check for $350.84, in full for invoice of May 3, less 2%. Your prompt shipment of the goods is greatly appreciated. The goods arrived in good condition and are proving satisfactory. We are in receipt of your check for $350.84, in full payment of invoice of May 3, less 2%, and have placed the remittance to your credit. We are pleased that the goods are giving satisfaction, and hope for further orders from you. Yours very truly, John Hoffman & Sons Co. by C. E. H. CHAPTER XVI TRADING ACCOUNTS The Merchandise account, as we have learned, is a mixed account. To this account have been posted the purchases and sales. At the end of the business period the inventory has been entered in the Merchandise account and the profit or loss found. The Merchandise account, as a mixed account, may be used in a small business but is not adapted to a large business. There are other elements that must be considered in a larger business. Returns and allowances are made on both purchases and sales. Freight must be paid on goods bought by the business. Materials and supplies for packing must be purchased. One mixed Merchandise account containing all of these different items would not give much definite information to the business man. In its place several accounts will be kept. The size of the business and the necessity of providing detailed information will, to a large extent, determine how many accounts will be kept. For the present, accounts will be kept with Purchases, Sales, Merchandise Trading, and Freight In. Purchases Account. An account is kept with Purchases to show the amount of all merchandise bought by the business, for all added costs, and for all returns and allowances on purchases. The cost of merchandise is more than simply the cost of the goods bought. To that must be added the cost of freight and drayage on goods bought. The cost of boxes, barrels, packing materials, and any charges for buying, such as agent's commission, add to the cost of the goods, as well as the wages paid the shipping clerk and his helpers. A separate account may be kept with each kind of added cost if the details are great in number. For the present, an account will be kept with Freight In for the cost of freight and drayage on goods bought. All other charges will be debited direct to Purchases. All charges to Purchases should be explained in the ledger by writing the charge in the explanatory column, as Cooperage, Packing boxes, Agent's commission. Monthly the total of the purchase book should be posted to the debit of the Purchases account. When a Freight In account is kept, the total of that account should be closed into Purchases before Purchases is closed. Returned Goods, Rebates, and Allowances. When the business returns goods that have been charged to Purchases or is given a rebate or allowance for a shortage, overcharge, or for damaged goods, Purchases must be credited. These items are not usually very numerous, so they may be entered in the journal. A separate book may be used for them in a larger business. The Journal entry would be as follows: C. N. Cady 8 Allowance for To Purchases; be. Oranges damaged, on inv. of the 4th 325 325 In posting this to the ledger in the explanatory column of both C. N. Cady's account and of Purchases, "Damaged goods" should be written. When an allowance is made, the seller usually sends the buyer a credit memorandum. This is often printed and written in red ink. It shows the buyer that he has been given credit for the allowance on the seller's books. Rule. Debit Purchases for all merchandise bought, for the cost of packing and shipping materials, and for the wages of the shipping clerk and helpers. Credit Purchases for all goods returned by us and for all allowances and rebates allowed to us on merchandise. To Close Purchases Account. The object of the closing of the Purchases account is to find the cost of the goods sold. To do this, the inventory of merchandise on hand at closing must be entered on the credit side in red ink. The difference, a debit balance, is entered in red ink on the credit side with the words Merchandise Trading and the page of that account. This difference is transferred to the debit side of Merchandise Trading in black ink. (See illustration on page 122) Freight In. This account is kept to show the cost of all freight and drayage on goods coming into the business. It is debited for these costs. It rarely has any credit items. It may be credited when a freight or drayage bill has been paid and afterward an allowance is made by the transportation company because of a mistake or an overcharge. To Close Freight In. Freight In should be closed into Purchases account as it is an added cost of merchandise bought. Find the sum of the debit side. From this sum, subtract the sum of the credit side, if any. The difference is the amount to be transferred to Purchases. Enter this difference on the credit side with the date, Purchases, and the page of |