Chapter 11, Problem 10SPA

CASH PAYMENTS TR ANS ACTIONS Sam Santiago operates a retail variety store. The books include a general journal and an accounts payable ledger. Selected account balances on May 1 are as follows:

The following are the transactions related to cash payments for the month of May:

May 1    Issued Check No. 426 in payment of May rent (Rent Expense), $2,400.

3    Issued Check No. 427 to Mueller’s Distributors in payment of merchandise purchased on account, $3,600, less a 3% discount. Check was written for $3,492.

7    Issued Check No. 428 to Van Kooning in partial payment of merchandise purchased on account, $5,500. A cash discount was not allowed.

12    Issued Check No. 429 to Fantastic Toys for merchandise purchased on account, $5,200, less a 1% discount. Check was written for $5,148.

15    Issued Check No. 430 to City Power and Light (Utilities Expense), $1,720.

18    Issued Check No. 431 to A-1 Warehouse for a cash purchase of merchandise, $4,800.

26    Issued Check No. 432 to Goya Outlet for merchandise purchased on account, $3,800, less a 2% discount. Check was written for $3,724.

30    Issued Check No. 433 to Mercury Transit Company for freight charges on merchandise purchased (Freight-In), $1,200.

31    Issued Check No. 434 to Town Merchants for a cash purchase of merchandise, $3,000.

Required

1. 1. Enter the transactions starting with page 9 of a general journal.
2. 2. Post from the general journal to the general ledger and the accounts payable ledger. Use general ledger account numbers as shown in the chapter.

To determine

Journalize the cash payment transactions for the month of May.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journalize the cash payment transactions for the month of May.

Transaction on May 1:

Page: 9
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
May	1	Rent Expense		521	2,400
			Cash	101		2,400
		(Record payment of rent expense)

Table (1)

Description:

• Rent Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on May 3:

Page: 9
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
May	3	Accounts Payable, M Distributors		202/✓	3,600
			Cash	101		3,492
			Purchases Discounts	501.2		108
		(Record cash paid for purchases on account)

Table (2)

Description:

• Accounts Payable, M Distributors is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
• Purchases Discounts is a contra-purchases or contra-costs account, and contra-purchases accounts increase the equity value, and an increase in equity is credited.

Working Note 1:

Compute purchases discount value.

$\begin{array}{c}\text{Purchases discounts = }\left\{\begin{array}{l}\left(\text{Purchases–Purchase returns and allowances}\right)\text{ ×}\\ \text{ Discount percentage}\end{array}\right\}\\ \text{= }\left(\text{\$3,600–\$0}\right)\text{×3\%}\\ \text{= \$108}\end{array}$

Transaction on May 7:

Page: 9
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
May	7	Accounts Payable, VK		202/✓	5,500
			Cash	101		5,500
		(Record cash paid for purchases on account)

Table (3)

Description:

• Accounts Payable, VK is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on May 12:

Page: 9
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
May	12	Accounts Payable, F Toys		202/✓	5,200
			Cash	101		5,148
			Purchases Discounts	501.2		52
		(Record cash paid for purchases on account)

Table (4)

Description:

• Accounts Payable, F Toys is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
• Purchases Discounts is a contra-purchases or contra-costs account, and contra-purchases accounts increase the equity value, and an increase in equity is credited.

Working Note 2:

Compute purchases discount value.

$\begin{array}{c}\text{Purchases discounts = }\left\{\begin{array}{l}\left(\text{Purchases–Purchase returns and allowances}\right)\text{ ×}\\ \text{ Discount percentage}\end{array}\right\}\\ \text{= }\left(\text{\$5,200–\$0}\right)\text{×1\%}\\ \text{= \$52}\end{array}$

Transaction on May 15:

Page: 9
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
May	15	Utilities Expense		533	1,720
			Cash	101		1,720
		(Record payment of utilities expense)

Table (5)

Description:

• Utilities Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on May 18:

Page: 9
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
May	18	Purchases		501	4,800
			Cash	101		4,800
		(Record purchase of inventory)

Table (6)

Description:

• Purchases is an expense account which records the cost of inventory purchased. An increase in expense reduces the equity value, and a decrease in equity is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on May 26:

Page: 9
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
May	26	Accounts Payable, G Outlet		202/✓	3,800
			Cash	101		3,724
			Purchases Discounts	501.2		76
		(Record cash paid for purchases on account)

Table (7)

Description:

• Accounts Payable, G Outlet is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
• Purchases Discounts is a contra-purchases or contra-costs account, and contra-purchases accounts increase the equity value, and an increase in equity is credited.

Working Note 3:

Compute purchases discount value.

$\begin{array}{c}\text{Purchases discounts = }\left\{\begin{array}{l}\left(\text{Purchases–Purchase returns and allowances}\right)\text{ ×}\\ \text{ Discount percentage}\end{array}\right\}\\ \text{= }\left(\text{\$3,800–\$0}\right)\text{×2\%}\\ \text{= \$76}\end{array}$

Transaction on May 30:

Page: 9
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
May	30	Freight-In		502	1,200
			Cash	101		1,200
		(Record payment of freight charges)

Table (8)

Description:

• Freight-In is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on May 31:

Page: 9
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
May	31	Purchases		501	3,000
			Cash	101		3,000
		(Record purchase of inventory)

Table (9)

Description:

• Purchases is an expense account which records the cost of inventory purchased. An increase in expense reduces the equity value, and a decrease in equity is debited.
• Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

To determine

Post the given transactions into the accounts of the general ledger, and the suppliers account in accounts payable ledger.

Explanation of Solution

Posting transactions: The process of transferring the journalized transactions into the accounts of the ledger is known as posting the transactions.

Post the given transactions into the accounts of the general ledger.

ACCOUNT    Cash                                                                    ACCOUNT NO. 101
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	1	Balance	✓			40,000
	1		J9		2,400	37,600
	3		J9		3,492	34,108
	7		J9		5,500	28,608
	12		J9		5,148	23,460
	15		J9		1,720	21,740
	18		J9		4,800	16,940
	26		J9		3,724	13,216
	30		J9		1,200	12,016
	31		J9		3,000	9,016

Table (10)

ACCOUNT    Accounts Payable                                              ACCOUNT NO. 202
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	1	Balance	✓				20,000
	3		J9	3,600			16,400
	7		J9	5,500			10,900
	12		J9	5,200			5,700
	28		J9	3,800			1,900

Table (11)

ACCOUNT   Purchases                                                             ACCOUNT NO. 501
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	18		J9	4,800		4,800
	31		J9	3,000		7,800

Table (12)

ACCOUNT   Purchases Discounts                                          ACCOUNT NO. 501.2
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	3		J9		108		108
	12		J9		52		160
	26		J9		76		236

Table (13)

ACCOUNT   Freight-In                                                         ACCOUNT NO. 502
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	30		J9	1,200		1,200

Table (14)

ACCOUNT   Rent Expense                                                    ACCOUNT NO. 521
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	1		J9	2,400		2,400

Table (15)

ACCOUNT   Utilities Expense                                                  ACCOUNT NO. 533
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	15		J9	1,720		1,720

Table (16)

Post the accounts payable balances of the suppliers to the supplier accounts in the accounts payable ledger.

NAME         F Toys
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
May	1	Balance	✓			5,200
	12		J9	5,200		0

Table (17)

NAME         G Outlet
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
May	1	Balance	✓			3,800
	26		J9	3,800		0

Table (18)

NAME         M Distributors
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
May	1	Balance	✓			3,600
	3		J9	3,600

Table (19)

NAME         VK
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
May	18	Balance	✓			7,400
	7		J9	5,500		1,900

Table (20)