
Concept explainers
Journal entries are the transactions of quantitative nature that are made in the books of accounts to record every transaction that happens in the business in the chronological order.
Accounting rules for journal entries:
- To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
- To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.
Perpetual Inventory System:
It is an inventory system wherein the accounts related to inventory are updated on each purchase and sale happening. Quantities of inventory are updated on continuous basis. This can be done by integrating the inventory system to order entry and to the retail sale point of system.
Gross Method:
Under this method, all the purchases are recorded in the books of account without taking into account the trade discount, returns and allowances. T
he purchases are to be recorded at full cost.
To prepare: Journal entries in the books of Company C.

Explanation of Solution
Purchased merchandise inventory worth $6,000.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 1 | Merchandise Inventory | 6,000 | ||
Account Payable | 6,000 | |||
(To record merchandise inventory purchased on credit) |
- Merchandise Inventory account is an asset account. Since there is purchase of merchandise inventory, so asset account is to be increased. Therefore, Merchandise Inventory account is debited.
- Account Payable is a liability account. Since payment is to be made for purchases on account, so liability is to be increased. Therefore, Account Payable account is credited.
Sold Merchandise inventory on account for $900:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 2 | Account Receivable | 900 | ||
Sales | 900 | |||
(To record sales made on account) |
- Account receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, Account Receivable account is debited.
- Sales is a revenue account. Since sales is made it has to be increased. Therefore, Sales account is to be credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 2 | Cost of Goods Sold | 500 | ||
Merchandise Inventory | 500 | |||
(To record cost of goods sold) |
- Cost of Goods Sold account is an expense account. Since goods are being sold, expense has increased. Therefore, Cost of Goods Sold account is debited.
- Merchandise Inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, Merchandise Inventory account is to be credited.
Paid $125 cash for shipping charges:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 3 | Merchandise Inventory | 125 | ||
Cash | 125 | |||
(To record shipping charges paid by buyer) |
- Merchandise Inventory is an asset account. Since the amount of freight is added up in the Merchandise inventory value, the value of assets is increased. So, debit the Merchandise Inventory account.
- Cash is an asset account. Since the Cash is paid, the value of assets is decreased. So, credit the Cash account.
Sold merchandise costing $1,300 for $1,700:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 8 | Cash | 1,700 | ||
Sales | 1,700 | |||
(To record shipping charges paid by buyer) |
- Cash is an asset account. Since the Cash is received, the value of assets is increased. So, debit the Cash account.
- Sales is a revenue account. Since sales is made, it needs to be increased. Therefore, Sales account is to be credited.
Record cost of goods which are sold:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 8 | Cost of Goods Sold | 1,300 | ||
Merchandise Inventory | 1,300 | |||
(To record cost of goods sold) |
- Cost of Goods Sold account is an expense account. Since goods are being sold, expense is to increased. Therefore, Cost of Goods Sold account is debited.
- Merchandise Inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, Merchandise Inventory account is to be credited.
Purchased merchandise inventory worth $2,200.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 9 | Merchandise Inventory | 2,200 | ||
Account Payable | 2,200 | |||
(To record merchandise inventory purchased on credit) |
- Merchandise Inventory account is an asset account. Since there is purchase of merchandise inventory, so asset account is to be increased. Therefore, Merchandise Inventory account is debited.
- Account payable is a liability account. Since payment is to be made for purchases on account, so liability is to be increased. Therefore, Account payable account is credited.
Purchase return made by Company C for $200:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 11 | Account Payable | 200 | ||
Merchandise Inventory | 200 | |||
(To record return of merchandise worth $500) |
- Account payable is a liability account. Since the Inventory which was purchased on credit is returned, this reduces the liability to be paid. So, debit the Accounts Payable account.
- Merchandise Inventory is an asset account. Since it is returned to the seller, the value of asset is to be reduced. So credit the Merchandise Inventory account.
Received cash from customer:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 12 | Cash | 882 | ||
Sales Discount | 18 | |||
Account Receivable | 900 | |||
(To record final payment received from Company A) |
- Cash is an asset account. Since, payment is received in cash, so it is to be increased. Therefore Cash account is credited.
- Sales Discount is an expense account. Since, an expense has increased, so it requires a debit in the entry. Therefore Sales Discount is debited.
- Account Receivable is an asset account. Since account receivable is getting recovered for cash, so it is to be reduced. Therefore, Account Receivable is credited.
Working Note:
Computation of sales discount:
Computation of cash to be received:
Company C makes final payment to Company B:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 16 | Account Payable | 6,000 | ||
Merchandise Inventory | 60 | |||
Cash | 5,940 | |||
(To record cash payment made for merchandise inventory ) |
- Account Payable is a liability account. Since payment is to be made for account payable, this will result in reduction of liability. Therefore, Account payable account is debited.
- Merchandise Inventory account is an asset account. Since, discount is received in making final payment by company S from Company T, Merchandise Inventory is to be reduced. Therefore, Merchandise Inventory account is credited.
- Cash account is an asset account. Since, cash is paid so asset is reduced. Therefore, Cash account is credited.
Working Note:
Computation of Merchandise inventory:
Computation of Cash to be paid:
Sold Merchandise inventory on account for $1,200:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 19 | Account Receivable | 1,200 | ||
Sales | 1,200 | |||
(To record sales made on account) |
- Account Receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, account receivable account is debited.
- Sales is a revenue account. Since sales is made, so it needs to be increased. Therefore, sales account is to be credited.
Record cost of goods which were sold:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 19 | Cost of Goods sold | 800 | ||
Merchandise Inventory | 800 | |||
(To record cost of goods sold) |
- Cost of Goods Sold account is an expense account. Since goods are being sold, expense has increased. Therefore, Cost of Goods Sold account is debited.
- Merchandise Inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, Merchandise Inventory account is to be credited.
Company C gave credit memorandum to Company A:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 21 | Sales Return and Allowances | 100 | ||
| 100 | |||
(To record sales return) |
- Sales Return and Allowances account is an expense account. Since Company A is receiving the sales return so it needs to be increased, so expense account is to be increased. Therefore, Sales Return and Allowances account is to be debited.
- Accounts receivable is an asset account. Since account receivable is has reduced because of sales return, asset has reduced. Therefore, Accounts Receivable account is to be credited.
Company C makes final payment to Company L:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 24 | Account Payable | 2,000 | ||
Merchandise Inventory | 40 | |||
Cash | 1,960 | |||
(To record cash payment made for merchandise inventory ) |
- Account Payable is a liability account. Since payment is to be made for account payable, this will result in reduction of liability. Therefore, Account Payable account is debited.
- Merchandise Inventory account is an asset account. Since, discount is received in making final payment by company S from Company T, Merchandise Inventory is to be reduced. Therefore, Merchandise Inventory account is credited.
- Cash account is an asset account. Since, cash is paid so asset is reduced. Therefore, Cash account is credited.
Working Note:
Computation of Account payables:
Computation of Merchandise inventory:
Computation of Cash to be paid:
Received cash from customer:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 30 | Cash | 882 | ||
Sales Discount | 18 | |||
Account Receivable | 1,100 | |||
(To record final payment received from Company A) |
- Cash is an asset account. Since, payment is received in cash, so it is to be increased. Therefore Cash account is credited.
- Sales Discount is an expense account. Since, an expense is getting increased, so it requires a debit in the entry. Therefore Sales discount is debited.
- Account Receivable is an asset account. Since account receivable is getting recovered for cash, so it is to be reduced. Therefore, Account Receivable is credited.
Working Note:
Computation of Account receivables:
Computation of sales discount:
Computation of cash to be received:
Sold Merchandise inventory on account for $7,000:
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 31 | Account Receivable | 7,000 | ||
Sales | 7,000 | |||
(To record sales made on account) |
- Account Receivable is an asset account. Since payment is to be received, so asset is to be increased. Therefore, Account Receivable account is debited.
- Sales is a revenue account. Since sales is made, so it needs to be increased. Therefore, Sales account is to be credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 31 | Cost of Goods Sold | 4,800 | ||
Merchandise Inventory | 4,800 | |||
(To record cost of goods sold) |
- Cost of Goods Sold account is an expense account. Since goods are being sold, expense has increased. Therefore, Cost of Goods Sold account is debited.
- Merchandise Inventory account is an asset account. Since inventory is being sold, so it is to be reduced. Therefore, Merchandise Inventory account is to be credited.
Want to see more full solutions like this?
Chapter 4 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
- Please give me true answer this financial accounting questionarrow_forwardRaptors Inc. creates aluminum alloy parts for commercial aircraft. In a recent transaction Raptors leased a high precision lathe machine from Grizzlies Corp. on January 1, 2024. The following information pertains to the leased asset and the lease agreement: Cost of lathe to lessor $140,000 Grizzlies normal selling price for lathe 178,268 Useful life 7 years Estimated value at end of useful life 8,000 Lease provisions Lease term 5 years Payment frequency Annual Start date of lease January 1 Payment timing December 31 Estimated residual value at end of lease (unguaranteed) 20,000 Interest rate implicit in the lease (readily determinable by lessee) 7% Lessee's incremental borrowing rate 8% The lathe machine will revert back to the lessor at end of lease term, title does not transfer to lessee at any time, and there is not a bargain purchase option. Required…arrow_forwardFinancial Accountingarrow_forward
- Can you please solve this financial accounting problem without use Ai?arrow_forwardHobbiton Tours Ltd. has the following details related to its defined benefit pension plan as at December 31, 2024: Pension fund assets of $1,900,000 and actuarial obligation of $1,806,317. The actuarial obligation represents the present value of a single benefit payment of $3,200,000 that is due on December 31, 2030, discounted at an interest rate of 10%; i.e. $3,200,000 / 1.106 = $1,806,317. Funding during 2025 was $55,000. The actual value of pension fund assets at the end of 2025 was $2,171,000. As a result of the current services received from employees, the single payment due on December 31, 2030, had increased from $3,200,000 to $3,380,000. Required Compute the current service cost for 2025 and the amount of the accrued benefit obligation at December 31, 2025. Perform this computation for an interest rate of 8%. Derive the pension expense for 2025 under various assumptions about the expected return and discount rate. Complete the following table: Case…arrow_forwardCalculate Debt Ratios and Debt to Equity Ratio for 2016arrow_forward
- Please explain the correct approach for solving this financial accounting question.arrow_forwardIn 2026, Maple Leafs Co. sells its single machine, which cost $100,000 and has an undepreciated capital cost (UCC) of $25,000 for tax purposes. For financial reporting, the machine has carrying amount of $40,000. The sale price of the machine is $30,000. Aside from the sale of the machine, the company has other income (before taxes) of $600,000, which includes non-taxable dividends of $120,000 dollars received during the year. There are no other permanent or temporary differences. The company faces an income tax rate of 35%. Required Provide the journal entries for the company for 2026.arrow_forwardBlue Jays Corporation started operations on March 1, 2025. It needs to acquire a special piece of equipment for its manufacturing operations. It is evaluating two options as follows. Option 1: Lease the equipment for 5 years. Lease payments would be $11,000 per year, due at the beginning of each fiscal year (March 1). Blue Jays incremental borrowing rate is 5%. There is not a bargain purchase or renewal option. Blue Jays is responsible for all non-lease costs of operating the equipment. Option 2: Purchase the equipment for $50,000 by borrowing the full purchase amount at 5% over 5 years. This price is considered the fair value of the equipment. Payments are due at the end of each fiscal year (February 28). The equipment has a useful life of 5 years and would be depreciated on a straight-line basis. No residual value is expected to exist at the end of 5 years. Required Calculate the present value of the lease payments (Option 1). Calculate the payment that would be…arrow_forward
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning


