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 cost incurred to delivery inventory from the vendor (supplier) to the 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. 4.This event is composed of two parts. The first one (4a in the table below) is 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 expensed only at the point of sale (under 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. 5. The cash payment made by the bookstore to deliver goods to the customer is called transportation-out:

Transportation-out expenditures are expenses incurred to deliver products from the company to the 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. 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