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Concept explainers
1.
Calculate cash paid to suppliers.
1.
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Explanation of Solution
Cash outflows: The amount of cash paid by a company for the operating, investing, and financing activities of the business during a certain period is referred to as
Calculate cash paid to suppliers.
Situation | Cost of goods sold | Inventory Increase (Decrease) | Accounts payable Increase (Decrease) | Cash paid to suppliers |
1 | $150 | $25 | $20 | (1) $155 |
2 | $150 | ($25) | $20 | (2) $105 |
3 | $150 | $25 | ($20) | (3) $195 |
4 | $150 | ($25) | ($20) | (4) $145 |
Table (1)
Working note:
Calculate amount of cash paid to suppliers for each situation:
Situation 1:
Situation 2:
Situation 3:
Situation 4:
2.
Prepare the summary
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Prepare the summary journal entry for each situation.
Situation 1:
Date | Accounts title and explanation | Debit ($) | Credit ($) |
Cost of goods sold | 150 | ||
Inventory | 25 | ||
Accounts payable | 20 | ||
Cash | 155 | ||
(To record the summary journal entry) |
Table (1)
- Cost of goods sold is an expense account and it decreases the
stockholders’ equity. Hence, debit cost of goods sold with $150. - Inventory is an asset account and it is increased. Hence, debit inventory with $25.
- Accounts payable is a liability account and it is increased. Hence, credit accounts payable with $20.
- Cash is an asset account and it is decreased. Therefore, credit cash with $155.
Situation 2:
Date | Accounts title and explanation | Debit ($) | Credit ($) |
Cost of goods sold | 150 | ||
Inventory | 25 | ||
Accounts payable | 20 | ||
Cash | 105 | ||
(To record the summary journal entry) |
Table (2)
- Cost of goods sold is an expense account and it decreases the stockholders’ equity. Hence, debit cost of goods sold with $150.
- Inventory is an asset account and it is decreased. Hence, credit inventory with $25.
- Accounts payable is a liability account and it is decreased. Hence, credit accounts payable with $20.
- Cash is an asset account and it is decreased. Therefore, credit cash with $105.
Situation 3:
Date | Accounts title and explanation | Debit ($) | Credit ($) |
Cost of goods sold | 150 | ||
Accounts payable | 20 | ||
Inventory | 25 | ||
Cash | 195 | ||
(To record the summary journal entry) |
Table (3)
- Cost of goods sold is an expense account and it decreases the stockholders’ equity. Hence, debit cost of goods sold with $150.
- Inventory is an asset account and it is increased. Hence, debit inventory with $25.
- Accounts payable is a liability account and it is decreased. Hence, debit accounts payable with $20.
- Cash is an asset account and it is decreased. Therefore, credit cash with $195.
Situation 4:
Date | Accounts title and explanation | Debit ($) | Credit ($) |
Cost of goods sold | 150 | ||
Accounts payable | 20 | ||
Inventory | 25 | ||
Cash | 145 | ||
(To record the summary journal entry) |
Table (4)
- Cost of goods sold is an expense account and it decreases the stockholders’ equity. Hence, debit cost of goods sold with $150.
- Accounts payable is a liability account and it is decreased. Hence, debit accounts payable with $20.
- Inventory is an asset account and it is decreased. Hence, credit inventory with $25.
- Cash is an asset account and it is decreased. Therefore, credit cash with $145.
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Chapter 11 Solutions
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