Chapter 5, Problem 5.2AP

(a)

To determine

Perpetual Inventory System: 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.

Journal entries: Journal is the book of original entry whereby all the financial transactions are recorded in chronological order. Under this method each transaction has two sides, debit side and credit side. Total amount of debit side must be equal to the total amount of credit side. In addition, it is the primary books of accounts for any entity to record the daily transactions and processed further till the presentation of the financial statements.

Accounting rules for journal entries:

• To Increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To Decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Leger Account: Leger account is an accountings book in which the debit entries are shown at the left side of the account and credit entries are shown at the right side of the account. It can be termed as principal book.

Income Statement: The income statement is the financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

To Prepare: Journal entries.

(b)

To determine

To post: Balances and transactions:

(c)

To determine

To prepare: Income Statement through gross profit for the month of May 2017.