Chapter 11, Problem 10SPB

CASH PAYMENTS TRANSACTIONS Kay Zembrowski 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 transactions are related to cash payments for the month of May:

May 1    Issued Check No. 326 in payment of May rent (Rent Expense), $2,600.

4    Issued Check No. 327 to Cortez Distributors in payment of merchandise purchased on account, $4,200, less a 3% discount. Check was written for $4,074.

7    Issued Check No. 328 to Indra & Velga in partial payment of merchandise purchased on account, $6,200. A cash discount was not allowed.

11    Issued Check No. 329 to Toy Corner for merchandise purchased on account, $4,600, less a 1% discount. Check was written for $4,554.

15    Issued Check No. 330 to County Power and Light (Utilities Expense), $1,500.

19    Issued Check No. 331 to Builders Warehouse for a cash purchase of merchandise, $3,500.

25    Issued Check No. 332 to Troutman Outlet for merchandise purchased on account, $4,400, less a 2% discount. Check was written for $4,312.

May 30    Issued Check No. 333 to Rapid Transit Company for freight charges on merchandise purchased (Freight-In), $800.

31    Issued Check No. 334 to City Merchants for a cash purchase of merchandise, $2,350.

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	2,600
			Cash	101		2,600
		(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 4:

Page: 9
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
May	4	Accounts Payable, C Distributors		202/✓	4,200
			Cash	101		4,074
			Purchases Discounts	501.2		126
		(Record cash paid for purchases on account)

Table (2)

Description:

• Accounts Payable, C 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.

$\begin{array}{c}\text{Purchases discounts = }\left\{\begin{array}{l}\left(\text{Purchases–Purchase returns and allowances}\right)\text{ ×}\\ \text{ Discount percentage}\end{array}\right\}\\ \text{= }\left(\text{\$4,200–\$0}\right)\text{×3\%}\\ \text{= \$126}\end{array}$

Transaction on May 7:

Page: 9
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
May	7	Accounts Payable, IV		202/✓	6,200
			Cash	101		6,200
		(Record cash paid for purchases on account)

Table (3)

Description:

• Accounts Payable, IV 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 11:

Page: 9
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
May	11	Accounts Payable, T Corner		202/✓	4,600
			Cash	101		4,554
			Purchases Discounts	501.2		46
		(Record cash paid for purchases on account)

Table (4)

Description:

• Accounts Payable, T Corner 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.

$\begin{array}{c}\text{Purchases discounts = }\left\{\begin{array}{l}\left(\text{Purchases–Purchase returns and allowances}\right)\text{ ×}\\ \text{ Discount percentage}\end{array}\right\}\\ \text{= }\left(\text{\$4,600–\$0}\right)\text{×1\%}\\ \text{= \$46}\end{array}$

Transaction on May 15:

Page: 9
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
May	15	Utilities Expense		533	1,500
			Cash	101		1,500
		(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 19:

Page: 9
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
May	19	Purchases		501	3,500
			Cash	101		3,500
		(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 25:

Page: 9
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
May	25	Accounts Payable, T Outlet		202/✓	4,400
			Cash	101		4,312
			Purchases Discounts	501.2		88
		(Record cash paid for purchases on account)

Table (7)

Description:

• Accounts Payable, T 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	800
			Cash	101		800
		(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	2,350
			Cash	101		2,350
		(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		2,600	37,400
	4		J9		4,074	33,326
	7		J9		6,200	27,126
	11		J9		4,554	22,572
	15		J9		1,500	21,072
	19		J9		3,500	17,572
	25		J9		4,312	13,260
	30		J9		800	12,460
	31		J9		2,350	10,110

Table (10)

ACCOUNT    Accounts Payable                                              ACCOUNT NO. 202
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	1	Balance	✓				20,000
	4		J9	4,200			15,800
	7		J9	6,200			9,600
	11		J9	4,600			5,000
	25		J9	4,400			600

Table (11)

ACCOUNT   Purchases                                                             ACCOUNT NO. 501
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	19		J9	3,500		3,500
	31		J9	2,350		5,850

Table (12)

ACCOUNT   Purchases Discounts                                          ACCOUNT NO. 501.2
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	4		J9		126		126
	11		J9		46		172
	25		J9		88		260

Table (13)

ACCOUNT   Freight-In                                                         ACCOUNT NO. 502
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	30		J9	800		800

Table (14)

ACCOUNT   Rent Expense                                                    ACCOUNT NO. 521
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	1		J9	2,600		2,600

Table (15)

ACCOUNT   Utilities Expense                                                  ACCOUNT NO. 533
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
May	15		J9	1,500		1,500

Table (16)

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

NAME         T Corner
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
May	1	Balance	✓			4,600
	11		J9	4,600		0

Table (17)

NAME         T Outlet
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
May	1	Balance	✓			4,400
	25		J9	4,400		0

Table (18)

NAME         C Distributors
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
May	1	Balance	✓			4,200
	4		J9	4,200

Table (19)

NAME         IV
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
May	1	Balance	✓			6,800
	7		J9	6,200		600

Table (20)