Day 5: The purchase and sale of inventory on credit terms
Key terms and concepts
• Inventory: goods that we purchase for resale. It is the basis of our business and is not something used or consumed within our business itself.
• Credit purchase and credit sale: a purchase or sale of inventory where settlement of the account occurs at a later time. The credit terms are usually stated on the invoice, for example, ‘Net 30 days’.
• Accrual accounting: recording of all business transactions at the time that a legal obligation exists for you to pay or receive money, albeit sometime in the future. You ‘accrue’ or record the right within your accounting system.
• ‘Cash accounting’ principles: under cash accounting rules, credit purchases and credit ...
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