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1.
Prepare journal entries to record the transactions of Company S during the month of May using perpetual inventory system.
1.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.
Record the
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
May 11 | Merchandise Inventory | 40,000 | ||
Accounts Payable | 40,000 | |||
(To record purchases of inventory on account) |
Table (1)
Description:
- Merchandise inventory is an asset and it is increased by $40,000. Therefore, debit merchandise inventory account with $40,000.
- Accounts payable is a liability and it is increased by $40,000. Therefore, credit accounts payable account with $40,000.
Record the journal entry for payment of shipping charges:
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
May 11 | Merchandise Inventory | 345 | ||
Cash | 345 | |||
(To record the shipping charges on purchases of inventories) |
Table (2)
Description:
- Merchandise inventory is an asset and it is increased by $345. Therefore, debit merchandise inventory account with $345.
- Cash is an asset and it is decreased by $345. Therefore, credit cash account with $345.
Record the journal entry for purchase returned:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
May 12 | Accounts Payable | 1,400 | ||
Merchandise Inventory | 1,400 | |||
(To record the purchases return) |
Table (3)
Description:
- Accounts payable is a liability and it is decreased by $1,400. Therefore, debit accounts payable account with $1,400.
- Merchandise inventory is an asset and it is decreased by $1,400. Therefore, credit inventory account with $1,400.
Record the journal entry for payment of due amount:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
May 20 | Accounts Payable | 38,600 (1) | ||
Merchandise Inventory | 1,158 (2) | |||
Cash | 37,442 (3) | |||
(To record paying cash on purchases after discounts and returns) |
Table (4)
Description:
- Accounts payable is a liability and it is decreased by $38,600. Therefore, debit accounts payable account with $38,600.
- Merchandise inventory is an asset and it is decreased by $1,158. Therefore, credit merchandise inventory account with $1,158.
- Cash is an asset and it is decreased by $37,442. Therefore, credit cash account with $37,442.
Working notes:
Calculate the amount of net accounts payable.
Inventory = $40,000
Purchase returns = $1,400
Calculate the amount of purchase discount.
Net accounts payable = $38,600 (1)
Discount percentage = 3%
Calculate the amount of cash paid.
Net accounts payable = $38,600 (1)
Purchase discount = $1,158 (2)
2.
Prepare journal entries to record the transactions of Company T during the month of May using perpetual inventory system.
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.
Record the journal entry for merchandise sold:
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
May 11 | 40,000 | ||
Sales Revenue | 40,000 | ||
(To record merchandise sales on account) | |||
Cost of goods sold | 30,000 | ||
Merchandise Inventory | 30,000 | ||
(To record cost of goods sold) |
Table (5)
Description:
- Accounts Receivable is an asset and it is increased by $40,000. Therefore, debit account receivable with $40,000.
- Sales revenue is revenue and it increases the value of equity by $40,000. Therefore, credit sales revenue with $40,000.
- Cost of goods sold is an expense account and it decreases the value of equity by $30,000. Therefore, debit cost of goods sold account with $30,000.
- Merchandise inventory is an asset and it is decreased by $30,000. Therefore, credit inventory account with $30,000.
Record the journal entry for sales return:
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
May 12 | Sales Returns and Allowance | 1,400 | |
Accounts Receivable | 1,400 | ||
(To record the sales return) | |||
Merchandise Inventory | 800 | ||
Cost of goods sold | 800 | ||
(To record the reversal of cost of goods sold on sales return) |
Table (6)
Description:
- Sales return and allowance is an expense account and it decreases the value of equity by $1,400. Therefore, debit sales returns and allowances account with $1,400.
- Accounts Receivable is an asset and it is decreased by $1,400. Therefore, credit account receivable with $1,400.
- Inventory is an asset and it is increased by $800. Therefore, debit inventory account with $800.
- Cost of goods sold is an expense account and it increases the value of equity by $800. Therefore, credit cost of goods sold account with $800.
Record the journal entry for receipt of payment:
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
May 20 | Cash | 37,442 (6) | |
Sales Discounts | 1,158 (5) | ||
Accounts Receivable | 38,600 (4) | ||
(To record receiving cash on sales after discounts and returns) |
Table (7)
Description:
- Cash is an asset and it is increased by $37,442. Therefore, debit cash account with $37,442.
- Sales Discounts is a contra revenue account and would have a debit balance. Therefore, debit sales discounts account with $1,158.
- Accounts Receivable is an asset and it is decreased by $38,600. Therefore, credit account receivable with $38,600.
Working notes:
Calculate the amount of accounts receivable.
Accounts receivable = $40,000
Sales returns = $1,400
Calculate the amount of sales discount.
Net accounts receivable = $38,600 (4)
Discount percentage = 3%
Calculate the amount of cash received.
Net accounts receivable = $38,600 (4)
Sales discount = $1,158 (5)
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Chapter 4 Solutions
FINANCIAL ACCOUNTING FUNDAMENTALS W/CO
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