Chapter 4, Problem 2GLP

To determine

Journal entry:

Journal is the primary record of business transactions in chronological (date wise) order. Journal entry contains two effects, one is debit and the other is credit, under the double entry book keeping system.

Procedure for debiting and crediting an account:

• Increase in assets account, increase in expenses account, and decrease in liabilities account should be debited.

• Decrease in assets account, increase in revenue account, and increase in liabilities account should be credited.

All transactions affect the accounting equation that is displayed below. The accounting equation should always remain in balance at the time of recording a business transaction:

Perpetual inventory system:

It is an inventory system wherein the accounts related to inventory are updated on each purchase and sales that occur. Quantities of inventory are updated on continuous basis.

To prepare: The journal entries.

Explanation of Solution

Prepare the journal entries as shown below.

Date	Particulars	L/F	Debit ($)	Credit ($)
Aug 1	Merchandise inventory		7,500
	Accounts payable			7,500
	(To record merchandise inventory purchased on credit)
Aug 5	Account receivable		5,200
	Sales			5,200
	(To record sales made on account)
Aug 5	Cost of goods sold		4,000
	Merchandise inventory			4,000
	(To record cost of goods sold)
Aug 8	Merchandise Inventory		5,400
	Account payable			5,400
	(To record merchandise inventory purchased on credit)
Aug 9	Merchandise Inventory		125
	Cash			125
	(To record shipping charges paid by buyer)
Aug 10	Sales return and allowances		600
	Account receivable			600
	(To record sales return)
Aug 10	Merchandise inventory		400
	Cost of goods sold			400
	(To record cost of goods sold)
Aug 12	Account payable		700
	Merchandise Inventory			700
	(To record price reduction worth $400)
Aug 14	Account payable		200
	Cash			200
	(To record shipping charges paid by buyer)
Aug 15	Cash		4,508
	Sales discount		92
	Account receivable			4,600
	(To record final payment received from Company A)
Aug 18	Account payable		5,000
	Merchandise inventory			50
	Cash			4,950
	(To record cash payment made for merchandise inventory )
Aug 19	Cost of goods sold		2,400
	Merchandise inventory			2,400
	(To record cost of goods sold)
Aug 19	Account receivable		4,800
	Sales			4,800
	(To record sales made on account)
Aug 22	Sales Return and Allowance		500
	Account receivable			500
	(To record price reduction worth $500)
Aug 29	Cash		4,300
	Account receivable			4,300
	(To record final payment received from Company A)
Aug 30	Account payable		7,300
	Cash			7,300
	(To record cash payment made for merchandise inventory )

Table (1)

Now prepare the general ledgers as shown below.

Merchandise Inventory
Date	Particulars	Post ref	Debit ($)	Credit ($)	Balance ($)
Aug 1	Accounts payable		7,500		7,500
Aug 5	Cost of goods sold			4,000	3,500
Aug 8	Accounts payable		5,400		8,900
Aug 9	Cash		125		9,025
Aug 10	Cost of goods sold		400		9,425
Aug 12	Accounts payable			400	9,025
Aug 18	Accounts payable			50	8,975

Table (2)

Hence, the ending balance is $8,975.

Sales Discount
Date	Particulars	Post ref	Debit ($)	Credit ($)	Balance ($)
Aug 15	Accounts receivable		92		92

Table (3)

Hence, the ending balance is $92.

Sales Return and Allowance
Date	Particulars	Post ref	Debit ($)	Credit ($)	Balance ($)
Aug 10	Accounts receivable		600		600
Aug 22	Accounts receivable		500		1,100

Table (4)

Hence, the ending balance is $1,100.

Account Payable
Date	Particulars	Post ref	Debit ($)	Credit ($)	Balance ($)
Aug 1	Merchandise inventory			7,500	7,500
Aug 8	Merchandise inventory			5,400	12,900
Aug 12	Merchandise inventory		400		12,500
Aug 14	Cash		200		12,300
Aug 18	Merchandise inventory		50		12,250
Aug 18	Cash		4,950		7,300
Aug 30	Cash		7,300		0

Table (5)

Hence, the ending balance is $ 0.

Accounts Receivable
Date	Particulars	Post ref	Debit ($)	Credit ($)	Balance ($)
Aug 5	Sales		5,200		5,200
Aug 10	Sales return			600	4,600
Aug 15	Cash			4,508	92
Aug 15	Sales discount			92	0
Aug 19	Sales		4,800		4,800
Aug 22	Sales return			500	4,300
Aug 29	Cash			4,300	0

Table (6)

Hence, the ending balance is $0.

Cash
Date	Particulars	Post ref	Debit ($)	Credit ($)	Balance ($)
Aug 9	Merchandise inventory			125	(125)
Aug 14	Accounts payable			200	(325)
Aug 15	Accounts receivable		4,508		4,183
Aug 18	Accounts payable			4,950	(767)
Aug 29	Accounts receivable		4,300		3,533
Aug 30	Accounts payable			7,300	(3,767)

Table (7)

Hence, the ending balance is $(3,767).

Cost of goods sold
Date	Particulars	Post ref	Debit ($)	Credit ($)	Balance ($)
Aug 5	Merchandise inventory		4,000		4,000
Aug 10	Merchandise inventory			400	3,600

Table (8)

Hence, the ending balance is $3,600.

Sales
Date	Particulars	Post ref	Debit ($)	Credit ($)	Balance ($)
Aug 5	accounts receivable			5,200	5,200
Aug 19	accounts receivable			4,800	10,000

Table (9)

Hence, the ending balance is $10,000.