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Prepare journal entries to record the transactions of Company B during the month of November using perpetual inventory system.
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Explanation of Solution
Perpetual Inventory System refers to the Merchandise Inventory system that maintains the detailed records of every Merchandise Inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-merchandise inventory at any point of time.
The following are the rules of debit and credit:
- 1. Increase in assets and expenses accounts are debited. Decrease in liabilities and
stockholders’ equity accounts are debited. - 2. Increase in liabilities, revenues, and stockholders’ equity accounts are credited. Decreases in all asset accounts are credited.
Record the journal entry of Company B during November.
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
November 3 | Merchandise Inventory | 62,475 | ||
Accounts payable | 62,475 (1) | |||
(To record purchase on account) |
Table (1)
- Merchandise Inventory is an asset and it is increased by $62,475. Therefore, debit Merchandise Inventory account with $62,475.
- Accounts payable is a liability and it is increased by $62,475. Therefore, credit accounts payable account with $62,475.
Working Note (1):
Calculate the amount of accounts payable.
Purchases = $85,000
Trade discount percentage = 25%
Discount percentage = 2%
Record the journal entry for the sale of inventory on cash.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 4 | Cash | 37,680 | |
Sales Revenue | 37,680 | ||
(To record the sale of inventory on cash) |
Table (2)
- Cash is an asset and it is increased by $37,680. Therefore, debit cash account with $37,680.
- Sales revenue is revenue and it increases the value of equity by $37,680. Therefore, credit sales revenue with $37,680.
Record the journal entry for cost of goods sold.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 4 | Cost of Merchandise Sold | 22,600 | |
Merchandise Inventory | 22,600 | ||
(To record the cost of goods sold) |
Table (3)
- Cost of merchandise sold is an expense account and it decreases the value of equity by $22,600. Therefore, debit cost of merchandise sold account with $22,600.
- Merchandise Inventory is an asset and it is decreased by $22,600. Therefore, credit inventory account with $22,600.
Record the journal entry of Company B.
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
November 5 | Merchandise Inventory | 47,360 | ||
Accounts payable | 47,360 (2) | |||
(To record purchase on account) |
Table (4)
- Merchandise Inventory is an asset and it is increased by $47,360. Therefore, debit Merchandise Inventory account with $47,360.
- Accounts payable is a liability and it is increased by $47,360. Therefore, credit accounts payable account with $47,360.
Working Note (2):
Calculate the amount of accounts payable.
Purchases = $47,500
Discount percentage = 2%
Freight charges = $810
Record the journal entry of Company B.
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
November 6 | Accounts payable | 13,230 (3) | ||
Merchandise Inventory | 13,230 | |||
(To record purchase return) |
Table (5)
- Accounts payable is a liability and it is decreased by $13,230. Therefore, debit accounts payable account with $13,230.
- Merchandise Inventory is an asset and it is decreased by $13,230. Therefore, credit Merchandise Inventory account with $13,230.
Working Note (3):
Calculate the amount of accounts payable.
Purchases return = $13,500
Discount percentage = 2%
Record the journal entry for the sale of inventory on account.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 8 | 15,600 | ||
Sales Revenue | 15,600 | ||
(To record the sale of inventory on account) |
Table (6)
- Accounts Receivable is an asset and it is increased by $15,600. Therefore, debit accounts receivable with $15,600.
- Sales revenue is revenue and it increases the value of equity by $15,600. Therefore, credit sales revenue with $15,600.
Record the journal entry for cost of goods sold.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 8 | Cost of Merchandise Sold | 9,400 | |
Merchandise Inventory | 9,400 | ||
(To record the cost of goods sold) |
Table (7)
- Cost of merchandise sold is an expense account and it decreases the value of equity by $9,400. Therefore, debit cost of merchandise sold account with $9,400.
- Merchandise Inventory is an asset and it is decreased by $9,400. Therefore, credit inventory account with $9,400.
Record the journal entry of Company B.
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
November 13 | Accounts payable | 49,245 (4) | ||
Cash | 49,245 | |||
(To record payment made in full settlement less discounts) |
Table (8)
- Accounts payable is a liability and it is decreased by $49,245. Therefore, debit accounts payable account with $49,245.
- Cash is an asset and it is decreased by $49,245. Therefore, credit cash account with $49,245.
Working Note (4):
Calculate the amount of net accounts payable.
Merchandise Inventory = $62,475 (1)
Purchase returns = $13,230 (3)
Record the journal entry for the sale of inventory on cash.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 14 | Cash | 236,000 | |
Sales Revenue | 236,000 | ||
(To record the sale of inventory on cash) |
Table (9)
- Cash is an asset and it is increased by $236,000. Therefore, debit cash account with $236,000.
- Sales revenue is revenue and it increases the value of equity by $236,000. Therefore, credit sales revenue with $236,000.
Record the journal entry for cost of goods sold.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 14 | Cost of Merchandise Sold | 140,000 | |
Merchandise Inventory | 140,000 | ||
(To record the cost of goods sold) |
Table (10)
- Cost of merchandise sold is an expense account and it decreases the value of equity by $140,000. Therefore, debit cost of merchandise sold account with $140,000.
- Merchandise Inventory is an asset and it is decreased by $140,000. Therefore, credit inventory account with $140,000.
Record the journal entry of Company B.
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
November 15 | Accounts payable | 47,360 | ||
Cash | 47,360 | |||
(To record payment made in full settlement less discounts) |
Table (11)
- Accounts payable is a liability and it is decreased by $47,360. Therefore, debit accounts payable account with $47,360.
- Cash is an asset and it is decreased by $47,360. Therefore, credit cash account with $47,360.
Record the journal entry for the cash receipt against accounts receivable.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 23 | Cash | 15,600 | |
Accounts Receivable | 15,600 | ||
(To record the receipt of cash against accounts receivables) |
Table (12)
- Cash is an asset and it is increased by $15,600. Therefore, debit cash account with $15,600.
- Accounts Receivable is an asset and it is increased by $15,600. Therefore, debit accounts receivable with $15,600.
Record the journal entry for the sale of inventory on account.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 24 | Accounts Receivable | 56,331 (5) | |
Sales Revenue | 56,331 | ||
(To record the sale of inventory on account) |
Table (13)
- Accounts Receivable is an asset and it is increased by $56,331. Therefore, debit accounts receivable with $56,331.
- Sales revenue is revenue and it increases the value of equity by $56,331. Therefore, credit sales revenue with $56,331.
Working Note (5):
Calculate the amount of accounts receivable.
Sales = $56,900
Discount percentage = 1%
Record the journal entry for cost of goods sold.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 24 | Cost of Merchandise Sold | 34,000 | |
Merchandise Inventory | 34,000 | ||
(To record the cost of goods sold) |
Table (14)
- Cost of merchandise sold is an expense account and it decreases the value of equity by $34,000. Therefore, debit cost of merchandise sold account with $34,000.
- Merchandise Inventory is an asset and it is decreased by $34,000. Therefore, credit inventory account with $34,000.
Record the journal entry for credit card expense.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 28 | Credit card expense | 3,540 | |
Cash | 3,540 | ||
(To record the payment of credit card expenses) |
Table (15)
- Credit card expense is an expense account and it decreases the value of equity by $3,540. Therefore, debit credit card expense account with $3,540.
- Cash is an asset and it is decreased by $3,540. Therefore, credit cash account with $3,540.
Record the journal entry for sales return.
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
November 30 | Customer Refunds Payable | 6,000 | ||
Cash | 6,000 | |||
(To record sales returns) |
Table (16)
- Customer refunds payable is a liability account and it is decreased by $6,000. Therefore, debit customer refunds payable account with $6,000.
- Accounts Receivable is an asset and it is decreased by $6,000. Therefore, credit account receivable with $6,000.
Record the journal entry for the return of the merchandise.
Date | Accounts and Explanation | Debit ($) | Credit ($) |
November 30 | Merchandise Inventory | 3,300 | |
Estimated Returns Inventory | 3,300 | ||
(To record the return of the merchandise) |
Table (17)
- Merchandise Inventory is an asset and it is increased by $3,300. Therefore, debit inventory account with $3,300.
- Estimated returns inventory is an expense account and it increases the value of equity by $3,300. Therefore, credit estimated returns inventory account with $3,300.
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