Q13693929

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Andhra University *

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ACCOUNTING

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Accounting

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Nov 24, 2024

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Q13693929 AID: 1825 | 22/03/2019 [Delimiter] [General guidance] [Section: Concepts and reason] Transaction: Transaction is an act of buying or selling goods or rendering any service that is reliably measured in terms of money. Accounting: Accounting is a process of recording the transactions and classifying them in a specific manner. It is the process of summarizing, analyzing, and interpreting the results. It is a process of preserving the accounts. Journal entry: Journal entry is the recording of transactions in a systematic manner as they occur. Thus, it is a summary of all the transactions which has debit and credit aspects recorded chronologically. Assets: Asset is the resource of a company to generate income. Asset is generally classified into fixed assets, current assets, tangible assets, and intangible assets. Fixed assets are the assets that are used to generate income over a long period. Current assets are the assets that are realized within the current financial year. Tangible assets are the assets that can be felt and touched. Intangible assets are the assets that cannot be felt or touched. Liabilities: Liabilities are the company’s owing to outsiders. It is the obligation raised to a company to settle. Liability is generally classified into long term liability and short term liability. Long term liability is the liability to be settled in the succeeding financial years. Short term liability or current liability is the liability to be settled in the current financial year. [Section: Fundamentals] Rules for debit and credit:  When asset increases, debit it and when asset decreases, credit it.  When liabilities increase, credit them and when liabilities decrease, debit them.  When stockholders’ equity increases, credit it and when stockholders’ equity decreases, debit it.  When the expenses and losses increase, debit them and when the expenses and losses decrease, credit them.  When incomes and gains increase, credit them and when incomes and gains decrease debit them. Accounts payable: Accounts payable is the amount to be paid by the person or company who has purchased goods or received any services during the future period. It is the liability of the company and thus, shown under the liabilities in Balance sheet. Accounts receivable: Accounts receivable is the amount to be received by the company which has sold goods or rendered any services during the period. It is the asset of the company and thus, shown under the assets in Balance sheet. Sales: Sales is an activity of selling the goods in the market which is sold by the seller and purchased by the buyer. It is the main source of revenue for the company. It is necessary to have a consideration for sales. Cost of goods sold: The cost that is incurred by a business to sell the products in a particular period is called cost of goods sold. It is also known as the cost of sales. It is considered to be the expense of the current period. Inventory: Inventory refers to the goods purchased by a company from manufacturers for reselling them to the customers. Transportation charges at the time of purchase, storage, insurance cost, and many more are included in the merchandise inventory account. Inventory is one of the important current assets of the company. Sales revenue: The amount received by sale of goods or rendering services is known as sales revenue. This is the most earned revenue of a company. This is also called the sales revenue on gross. When gross sales revenue is deducted by any return, allowance, and discount, it is termed to be as net sales. Discount rate: The rate at which the purchase price is declined to some extent than that of the actual price is known as the discount rate. The rate is fixed by the seller and the buyer can avail the benefit. [Delimiter] [Starting Hint] Based on the information given in the question, prepare the journal entry to record the purchase of inventory. [Delimiter] [Step 1] 1) Prepare the journal entry to record the purchase of inventory.

Therefore, inventory is debited and accounts payable is credited with $1,600. [Part 1] Part 1 [Answer] [Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 1] [Explanation] It is given that the inventory is purchased on account. The value of purchases is $1,600. It is recorded. The purchases should be debited. Inventory is purchased. It should be debited. The accounts payable is a liability and it should be credited. Therefore, the inventory is debited and accounts payable is credited with $1,600. [Common mistakes] As per the debit and credit rules, assets should be debited. It is incorrect to credit. The purchase is a credit purchase. It should not be taken as a cash purchase. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the sales. [Delimiter] [Step 2] 2) Prepare the journal entry to record the sales.

Therefore, the accounts receivable is debited and the sales revenue is credited. [Part 2] Part 2 [Answer] [Answer End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 2] [Explanation] The books are sold for $2,900. It should be recorded. It is recorded by debiting the accounts receivable and crediting the sales revenue with $2,900. The sales are credit sales. The accounts receivable should be debited. The sales revenue should be credited. Therefore, the accounts receivable is debited and the sales revenue is credited. The cost of the sales is recorded by debiting the cost of goods sold and crediting the inventory with the cost of $1,740. [Common mistakes] It is incorrect to record the sales with cost. The selling price should be taken to record. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the sales return. [Delimiter] [Step 3]

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3) Prepare the journal entry to record the sales return. Therefore, the accounts payable is debited and inventory is credited with $200. [Part 3] Part 3 [Answer] [Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 3] [Explanation] The purchase returns of books are recorded. It is recorded with the amount received. The amount received is $200. The accounts payable credited on purchase should be debited and the inventory should be credited. When the inventory is returned, it should be credited as the inventory count decreases. Therefore, the accounts payable is debited and the inventory is credited with $200. [Common mistakes] When the book purchased is returned, it is a purchase return. It should not be taken as sales returns. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the payment for purchase. [Delimiter] [Step 4] 4) Prepare the journal entry to record the payment for purchase.

Therefore, the accounts payable is debited with $1,400. The inventory is credited with $28 and cash is credited with $1,372. [Part 4] Part 4 [Answer] [Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 4] [Explanation] The inventory purchased is $1,600. $200 worth goods are returned. The balance is $1,400. The discount is two percent. To calculate the discount, $1,400 should be multiplied with two percent. It is $28. Therefore, the accounts payable is debited with $1,400. The inventory is credited with $28 and cash is credited with $1,372. Therefore, the accounts payable is debited with $1,400. The inventory is credited with $28 and cash is credited with $1,372. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the receipt of cash. [Delimiter] [Step 5] 5) Prepare the journal entry to record the receipt of cash. Therefore, the cash is debited and accounts receivable is credited with $2,900. [Part 5] Part 5

[Answer] [Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 5] [Explanation] It is given that the payment is received for sales made. The amounts of sales are $2,900. It is received now. Thus, the cash is debited and accounts receivable is credited. When the cash is received, it should be debited. Therefore, the cash is debited and the accounts receivable is credited with $2,900. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the sales. [Delimiter] [Step 6] 6) Prepare the journal entry to record the sales: [Part 6] Part 6 [Answer]

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[Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 6] [Explanation] The books are sold for $1,800. It should be recorded. It is recorded by debiting the accounts receivable and crediting the sales revenue with $1,800. The sales are credit sales. The accounts receivable should be debited. The sales revenue should be credited. Therefore, the accounts receivable is debited and the sales revenue is credited. The cost of the sales is recorded by debiting the cost of goods sold and crediting the inventory with the cost of $1,080. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the purchases. [Delimiter] [Step 7] 7) Prepare the journal entry to record the purchases. Therefore, the inventory is debited and accounts payable is credited with $1,400. [Part 7] Part 7 [Answer]

[Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 7] [Explanation] It is given that the books are purchased. It is given that the inventory is purchased on account. The value of purchases is $1,400. It is recorded. The purchases should be debited. The inventory is purchased. It should be debited. The accounts payable is a liability and it should be credited. Therefore, the inventory is debited and the accounts payable is credited with $1,400. [Common mistakes] The discount rate should not be included on the purchase. It should be considered on settling the bill. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the receipt of payment. [Delimiter] [Step 8] 8) Prepare the journal entry to record the receipt of payment. Therefore, the cash is debited with $1,800. The sales discount is credited with $1,782 and accounts receivable is credited with $18. Working notes: Calculate the value of sales discount:

Sales discount = Sales value Discount rate =$1,800 1% =$18   Therefore, the value of sales discount is $18. [Part 8] Part 8 [Answer] [Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 8] [Explanation] It is given that the payment is received for the books. The sales discount is one percent. The amount of sales is $1,800. To calculate the sales discount, sales should be multiplied with one percent. It is $18. The accounts receivable is calculated by deducting the sales discount from the sales value. Therefore, the cash is debited with $1,800. The sales discount is credited with $1,782 and accounts receivable is credited with $18. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the payment for purchases. [Delimiter] [Step 9] 9) Prepare the journal entry to record the payment for purchases. Therefore, accounts payable is debited with $1,400. The merchandise inventory is credited with $14 and cash is credited with $1,386.

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[Part 9] Part 9 [Answer] [Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 9] [Explanation] The purchase is made for $1,400. The discount rate is one percent. To calculate the discount, the purchase amount should be multiplied with one percent. It is $14. The balance is the cash received. The balance is $1,386. Therefore, the accounts payable is debited with $1,400. The merchandise inventory is credited with $14 and cash is credited with $1,386. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the sales on account. [Delimiter] [Step 10] 10) Prepare the journal entry to record the sales on account. [Part 10] Part 10 [Answer]

[Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 10] [Explanation] The books are sold for $1,000. It should be recorded. It is recorded by debiting the accounts receivable and crediting the sales revenue with $1,000. The sales are credit sales. The accounts receivable should be debited. The sales revenue should be credited. Therefore, the accounts receivable is debited and the sales revenue is credited. The cost of the sales is recorded by debiting the cost of goods sold and crediting the inventory with the cost of $600. [Hint for next step] Based on the information given in the question, prepare the journal entry to record the cost of books returned. [Delimiter] [Step 11] 11) Prepare the journal entry to record the cost of books returned.

[Part 11] Part 11 [Answer] [Answer End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Correct] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Answer Choice: Wrong] [Answer Choice End] [Part 11] [Explanation] The books are returned. The cost of books is $84. The return is calculated by debiting the sales return and allowances and crediting accounts receivable. It should be opposite to the sales. The sales return should be debited. The cost of merchandise should also be debited and the cost of goods sold should be credited with $84. [Common mistakes]

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 The sales return should be debited as it reduces the sales value. Sales should be credited as per the debit and credit rules. It should not be changed.  Cost of goods sold should be credited. It is incorrect to debit it.

Q13693929

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