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Concept explainers
Sales-related transactions
The- following selected transactions were completed by Affordable Supplies Co., which sells supplies primarily to wholesalers and occasionally to retail customers.
Jan. 6. Sold merchandise on account, $14,000. terms FOB shipping point, n/com. The cost of merchandise sold was $8,400. 8. Sold merchandise on account. $20,000. terms FOB destination. 1/10. n/30. The
cost of merchandise sold was $14,000. 16. Sold merchandise on account, $19-500. terms FOB shipping point, n/30. The cost of merchandise sold was $11,700.
18. Received check for amount due for sale on January 8.
19. Issued credit memorandum for $4,500 for merchandise returned from sale on January 16. The cost of the merchandise returned was $2,700.
26. Received check for amount due for sale on January 16 less credit memorandum
of January 19. 31. Paid Cashell Delivery Service $3,000 for merchandise delivered during January to
customers under shipping terms of FOB destination. 31. Received cheek for amount due for sale of January 6.
Instructions
Illustrate the effects of each of the preceding transactions on the accounts and financial statements of Affordable Supplies Co. Identify each transaction by date.
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Concept Introduction:
An organization can be manufacturing, servicing of merchandising type. For a manufacturing business the activities are manufacturing, payment to the supplier, sales, and receipts from the customer. For a merchandiser, the main business activities are the purchase, payment to the supplier, sales, and receipts from the customer. For a servicing business, the main business activities are the purchase, payment to the supplier, services, and receipts from the customer.
To Indicate:
The effect of each transaction on account and financial statements
Answer to Problem 4.2P
The effect of each transaction on account and financial statements is shown as follows:
Date | Account | Increase or Decrease |
Jan. 6 | Accounts Receivable | Increase |
Sales Revenue | Increase | |
Cost of Goods sold | Increase | |
Merchandise Inventory | Decrease | |
Jan. 8 | Accounts Receivable | Increase |
Sales Revenue | Increase | |
Cost of Goods sold | Increase | |
Merchandise Inventory | Decrease | |
Jan. 16 | Accounts Receivable | Increase |
Sales Revenue | Increase | |
Cost of Goods sold | Increase | |
Merchandise Inventory | Decrease | |
Jan. 18 | Cash | Increase |
Sales Discount | Increase | |
Accounts Receivable | Decrease | |
Jan. 19 | Sales return | Increase |
Accounts Receivable | Decrease | |
Merchandise Inventory | Increase | |
Cost of Goods sold | Decrease | |
Jan. 26 | Cash | Increase |
Accounts Receivable | Decrease | |
Jan. 31 | Cost of Goods sold | Increase |
Cash | Decrease | |
Jan. 31 | Cash | Increase |
Accounts Receivable | Decrease |
Explanation of Solution
The effect of each transaction on account and financial statements is explained shown as follows:
Date | Account | Account Type | Financial Statement | Amount | Increase or Decrease |
Jan. 6 | Accounts Receivable | Asset | Balance sheet | $ 14,000 | Increase |
Sales Revenue | Revenue | Income Statement | $ 14,000 | Increase | |
Cost of Goods sold | Expense | Income Statement | $ 8,400 | Increase | |
Merchandise Inventory | Asset | Balance sheet | $ 8,400 | Decrease | |
Jan. 8 | Accounts Receivable | Asset | Balance sheet | $ 20,000 | Increase |
Sales Revenue | Revenue | Income Statement | $ 20,000 | Increase | |
Cost of Goods sold | Expense | Income Statement | $ 14,000 | Increase | |
Merchandise Inventory | Asset | Balance sheet | $ 14,000 | Decrease | |
Jan. 16 | Accounts Receivable | Asset | Balance sheet | $ 19,500 | Increase |
Sales Revenue | Revenue | Income Statement | $ 19,500 | Increase | |
Cost of Goods sold | Expense | Income Statement | $ 11,700 | Increase | |
Merchandise Inventory | Asset | Balance sheet | $ 11,700 | Decrease | |
Jan. 18 | Cash | Asset | Balance sheet | $ 19,800 | Increase |
Sales Discount | Expense | Income Statement | $ 200 | Increase | |
Accounts Receivable | Asset | Balance sheet | $ 20,000 | Decrease | |
Jan. 19 | Sales return | Expense | Income Statement | $ 4,500 | Increase |
Accounts Receivable | Asset | Balance sheet | $ 4,500 | Decrease | |
Merchandise Inventory | Asset | Balance sheet | $ 2,700 | Increase | |
Cost of Goods sold | Expense | Income Statement | $ 2,700 | Decrease | |
Jan. 26 | Cash | Asset | Balance sheet | $ 15,000 | Increase |
Accounts Receivable | Asset | Balance sheet | $ 15,000 | Decrease | |
Jan. 31 | Cost of Goods sold | Expense | Income Statement | $ 3,000 | Increase |
Cash | Asset | Balance sheet | $ 3,000 | Decrease | |
Jan. 31 | Cash | Asset | Balance sheet | $ 14,000 | Increase |
Accounts Receivable | Asset | Balance sheet | $ 14,000 | Decrease |
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