Journal Entries: A journal entry can be defined as recording of a transaction in the books of accounts. Every transaction has two effects, so according to the effects the journal entries are recorded. There is debit and credit in every journal entry. On the basis of the basic accounting rules for assets, liabilities, revenues or incomes, the debit and credit are decided. To prepare: Journal entries for Blink Company for merchandising transactions.

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Answer 1

Question

Chapter 5, Problem 1GLP

To determine

Concept Introduction:

Journal Entries:

A journal entry can be defined as recording of a transaction in the books of accounts. Every transaction has two effects, so according to the effects the journal entries are recorded. There is debit and credit in every journal entry. On the basis of the basic accounting rules for assets, liabilities, revenues or incomes, the debit and credit are decided.

To prepare:

Journal entries for Blink Company for merchandising transactions.

Expert Solution & Answer

Answer to Problem 1GLP

Solution:

The journal entries for Blink Company for merchandising transactions are −

Date	Accounts Descriptions	Debit	Credit
Jul-01	Merchandise Inventory	6,000
	Accounts Payable - Boden		6,000
	(To record purchase of merchandise inventory)

Jul-02	Accounts Receivables - Creek Co.	900
	Sales		900
	(To record sales of inventory)

Jul-02	Cost of Goods sold	500
	Merchandise Inventory		500
	(To record cost of goods sold for the sales on July 2)

Jul-03	Merchandise Inventory	125
	Cash		125
	(To record payment of freight on merchandise inventory)

Jul-08	Cash	1,700
	Sales		1,700
	(To record cash sales of inventory)

Jul-11	Merchandise Inventory	2,200
	Accounts Payable - Leight Co.		2,200
	(To record purchase of merchandise inventory)

Jul-12	Accounts Payable - Leight Co.	200
	Merchandise Inventory		200
	(To record purchase return to Leight Co.)

Jul-12	Cash	882
	Sales Discounts	18
	Accounts Receivables - Creek Co.		900
	(To record collection of cash within discount period)

Jul-16	Accounts Payable - Boden	6,000
	Merchandise Inventory		60
	Cash		5,940
	(To record payment of accounts payable within discount period)

Jul-19	Accounts Receivable - Art. Co.	1,200
	Sales		1,200
	(To record sales of inventory)

Jul-19	Cost of goods sold	800
	Merchandise Inventory		800
	(To record cost of goods sold for the sales on July 19)

Jul-21	Merchandise Inventory	200
	Accounts Receivable - Art. Co.		200
	(To record issue of credit memo to Art Co.)

Jul-24	Accounts Payable - Leight Co.	2000
	Merchandise Inventory		40
	Cash		1960

Jul-30	Cash	980
	Sales Discounts	20
	Accounts Receivable - Art. Co.		1000
	(To record cash receipt from Art Co. within discount period)

Jul-31	Accounts Receivables - Creek Co.	7,000
	Sales		7,000
	(To record sales of inventory)

	Cost of Goods sold	4,800
	Merchandise Inventory		4,800
	(To record cost of goods sold for the sales on July 31)

Explanation of Solution

The above journal entries can be explained as −

July 1: The merchandise is purchased from Boden Co. So merchandise is debited and Accounts payable − Havel co. is credited.

July 2: The merchandised inventory is sold to Creek Co. so sales are recorded with a credit and since, the goods are sold on account, so Accounts receivable − Creek Co is debited.

July 2: The cost of goods sold for sales on July 2 has been recorded. Thus, the merchandise inventory is credited as it is getting reduce and costs of goods sold is debited as it is an expense.

July 3: The freight expense of $ 125 is paid on the purchases of July 1, thus added to the merchandise costs. So, merchandise is increased with a debit and cash is credited.

July 8: The goods are sold on cash basis, thus cash is debited and sales revenue is credited.

July 9: The merchandise is purchased from Leight Co. So merchandise is debited and Accounts payable − Leight Co. is credited

July 9: The purchase returns are recorded in this entry. Thus, the Accounts payable − Leight Co. is debited and merchandise inventory is credited.

July 12: The balance due from Creek Co. is received after deducting the sales discounts. The sales discounts are calculated as −

The given information is −

Credit sales = $ 900
Terms of credit sales = 2/10, n/60
Discount rate = 2 % (if it is paid within a period of 10 days)

Sales discounts = Credit Sales X Discount rateSales discounts = $ 900 X 2 %Sales discounts = $ 18

Thus, the sales discount will be = $ 18
The amount of cash will be calculated as −

Cash to be received = Credit Sales – Sales DiscountCash to be received = $ 900 − $ 18Cash to be received = $ 882

Thus, the cash to be received = $ 882.

July 16: The balance after deducting the discounts is paid to Boden Co. for the merchandise purchased on July 2. The discount received will be recorded under merchandise inventory. The discount will be calculated as −

The given information is −

Credit purchases = $ 6,000
Terms of credit sales = 1/15, n/30
Discount rate = 1 % (if it is paid within a period of 15 days)

Discounts = Credit Purchases X Discount rateDiscounts = $ 6,000 X 1 %Discounts = $ 60

Thus, the sales discount will be = $ 60
The amount of cash will be calculated as −

Cash to be Paid = Credit Purchases –DiscountCash to be Paid = $ 6,000 − $ 60Cash to be Paid = $ 5,940

Thus, the cash to be paid = $ 5,940.

July 19: The merchandised inventory is sold to Art Co. so sales are recorded with a credit and since, the goods are sold on account, so Accounts receivable − Art Co. is debited.

July 19: The cost of goods sold for sales on July 19 has been recorded. Thus, the merchandise inventory is credited as it is getting reduce and costs of goods sold is debited as it is an expense.

July 21: The sales returns are recorded in this entry, thus, merchandise inventory is debited and Accounts receivable − Art Co. is credited.
July 24: The balance after deducting the discounts is paid to Leight Co. for the merchandise purchased on May 9. The credit memo received from Leight will also be deducted from the balance.

Balance of Accounts payable = Credit Purchases – Amount of credit memoBalance of Accounts payable = $ 2,200 − $ 200Balance of Accounts payable = $ 2,000

The discount received will be recorded under merchandise inventory. The discount will be calculated as −
The given information is −

Credit purchases balance = $ 2,000
Terms of credit sales = 2/15, n/60
Discount rate = 2 % (if it is paid within a period of 15 days)

Discounts = Credit Purchases X Discount rateDiscounts = $ 2,000 X 2 %Discounts = $ 40

Thus, the discount will be = $ 40
The amount of cash will be calculated as −

Cash to be Paid = Credit Purchases –DiscountCash to be Paid = $ 2,000 − $ 40Cash to be Paid = $ 1,960

Thus, the cash to be paid = $ 1,960.

July 30: The balance due from Art Co. is received after deducting the sales discounts.
The balance will be calculated as −

Balance of Accounts receivable = Credit Sales – Amount of credit memoBalance of Accounts receivable = $ 1,200 − $ 200Balance of Accounts receivable = $ 1,000

The sales discounts are calculated as −
The given information is −

Credit sales balance = $ 1,000
Terms of credit sales = 2/15, n/60
Discount rate = 2 % (if it is paid within a period of 15 days)

Sales discounts = Credit Sales X Discount rateSales discounts = $ 1,000 X 2 %Sales discounts = $ 20

Thus, the sales discount will be = $ 20
The amount of cash will be calculated as −

Cash to be received = Credit Sales balance– Sales DiscountCash to be received = $ 1,000 − $ 20Cash to be received = $ 980

Thus, the cash to be received = $ 980.

July 31:The merchandised inventory is sold to Creek Co. so sales are recorded with a credit and since, the goods are sold on account, so Accounts receivable − Creek Co. is debited.

July 31: The cost of goods sold for sales on July 31 has been recorded. Thus, the merchandise inventory is credited as it is getting reduce and costs of goods sold is debited as it is an expense.

Conclusion

Thus, the journal entries for Blink Company have been prepared.

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