Chapter 4, Problem 4.2P

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.

To determine

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