## 5.3. Analysis of transportation-in costs

Event No. 3: Recall that all expenses incurred to deliver goods and make them ready for sale are treated as part of inventory costs and recorded in the Merchandise Inventory account. So, the transportation costs related to the delivery of inventory from the vendor to the bookstore are recorded in the Merchandise Inventory account. This transportation expense is called transportation-in:

Transportation-in expenditures are costs incurred to deliver inventory from a vendor (supplier) to a company. Transportation-in costs are treated as part of the inventory costs (product costs).

The transaction acts to increase merchandise inventory and to decrease cash. This is an asset exchange transaction:

Illustration 3: Effect of transportation-in costs

 Event No. Balance Sheet Income Statement Cash Flows Cash + Inv. = Cont. Cap. + Ret. Earn. Rev. - Exp. = Net Inc. Beg. 5,000 + 7,000 = 12,000 + 0 0 - 0 = 0 3 (200) + 200 = n/a + n/a n/a - n/a = n/a (200) OA End. 4,800 + 7,200 = 12,000 + 0 0 - 0 = 0

## 5.4. Analysis of inventory sale transaction

Event No. 4: This event is composed of two parts. The first one (4a in the table below) is the recognition of sales revenue. Cash and Retained Earnings increase by \$5,500. Transaction 4a is an asset source transaction. The second part (4b) is designed to record the cost of goods sold. Remember that goods are only expensed at the point of sale (under the perpetual system). Accordingly, \$2,000 should be removed from the Merchandise Inventory account and placed to the expense account called Cost of Goods Sold. Transaction 4b is an asset use transaction.

Illustration 4: Effects of inventory sale

 Event No. Balance Sheet Income Statement Cash Flows Cash + Inv. = Cont. Cap. + Ret. Earn. Rev. - Exp. = Net Inc. Beg. 4,800 + 7,200 = 12,000 + 0 0 - 0 = 0 4a 5,500 + n/a = n/a + 5,500 5,500 - n/a = 5,500 5,500 OA 4b n/a + (2,000) = n/a + (2,000) n/a - (2,000) = (2,000) End. 10,300 + 5,200 = 12,000 + 3,500 5,500 - (2,000) = 3,500

## 5.5. Analysis of transportation-out expenses

Event No. 5: The cash expenditure made by the bookstore to deliver goods to the customer is called transportation-out:

Transportation-out expenditures are expenses incurred to deliver products from a company to a customer. Transportation-out expenditures are treated as period costs and expensed in the period of incurrence.

The company records transportation-out expenditures as an operating expense. This is an asset use transaction:

Illustration 5: Effect of transportation-out expenses

 Event No. Balance Sheet Income Statement Cash Flows Cash + Inv. = Cont. Cap. + Ret. Earn. Rev. - Exp. = Net Inc. Beg. 10,300 + 5,200 = 12,000 + 3,500 5,500 - (2,000) = 3,500 5 (300) + n/a = n/a + (300) n/a - (300) = (300) (300) OA End. 10,000 + 5,200 = 12,000 + 3,200 5,500 - (2,300) = 3,200

## 5.6. Analysis of selling expenses transaction

Event No. 6: The \$400 cash payment for selling expense has the same effect as operating expenses do. Cash and Retained Earnings decrease. This is an asset use transaction:

Illustration 6: Effect of selling expenses

 Event No. Balance Sheet Income Statement Cash Flows Cash + Inv. = Cont. Cap. + Ret. Earn. Rev. - Exp. = Net Inc. Beg. 10,000 + 5,200 = 12,000 + 3,200 5,500 - (2,300) = 3,200 6 (400) + n/a = n/a + (400) n/a - (400) = (400) (400) OA End. 9,600 + 5,200 = 12,000 + 2,800 5,500 - (2,700) = 2,800
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