Concept explainers
The following selected transactions were completed during August between Summit Company and Beartooth Co.:
Instructions
Journalize the August transactions for (1) Summit Company and (2) Beartooth Co.
(1)
Prepare journal entries to record the transactions of Company S during the month of August using perpetual inventory system.
Explanation of Solution
Journal entry: 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.
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.
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.
Record the journal entry for the sale of inventory on account.
Date | Accounts and | Debit ($) | Credit ($) |
August 1 | Accounts Receivable | 47,040 (1) | |
Sales Revenue | 47,040 | ||
(To record the sale of inventory on account) |
Table (1)
Working Note 1:
Calculate the amount of accounts receivable.
Sales = $48,000
Discount percentage = 2%
- Accounts receivable is an asset and it is increased by $47,040. Therefore, debit accounts receivable with $47,040.
- Sales revenue is revenue and it increases the value of equity by $47,040. Therefore, credit sales revenue with $47,040.
Record the journal entry for cost of goods sold.
Date | Accounts and | Debit ($) | Credit ($) |
August 1 | Cost of Merchandise Sold | 28,800 | |
Merchandise Inventory | 28,800 | ||
(To record the cost of goods sold) |
Table (2)
- Cost of merchandise sold is an expense account and it decreases the value of equity by $28,800. Therefore, debit cost of merchandise sold account with $28,800.
- Merchandise Inventory is an asset and it is decreased by $28,800. Therefore, credit inventory account with $28,800.
Record the journal entry for delivery expense.
Date | Accounts and | Debit ($) | Credit ($) |
August 2 | Delivery expense | 1,150 | |
Cash | 1,150 | ||
(To record the payment of delivery expenses) |
Table (3)
- Delivery expense is an expense account and it decreases the value of equity by $1,150. Therefore, debit delivery expense account with $1,150.
- Cash is an asset and it is decreased by $1,150. Therefore, credit cash account with $1,150.
Record the journal entry for the sale of inventory on account.
Date | Accounts and | Debit ($) | Credit ($) |
August 5 | Accounts Receivable | 66,000 | |
Sales Revenue | 66,000 | ||
(To record the sale of inventory on account) |
Table (4)
- Accounts receivable is an asset and it is increased by $66,000. Therefore, debit accounts receivable with $66,000.
- Sales revenue is revenue and it increases the value of equity by $66,000. Therefore, credit sales revenue with $66,000.
Record the journal entry for cost of goods sold.
Date | Accounts and | Debit ($) | Credit ($) |
August 5 | Cost of Merchandise Sold | 40,000 | |
Merchandise Inventory | 40,000 | ||
(To record the cost of goods sold) |
Table (5)
- Cost of merchandise sold is an expense account and it decreases the value of equity by $40,000. Therefore, debit cost of merchandise sold account with $40,000.
- Merchandise Inventory is an asset and it is decreased by $40,000. Therefore, credit inventory account with $40,000.
Record the journal entry for the sale of inventory on account.
Date | Accounts and | Debit ($) | Credit ($) |
August 15 | Accounts Receivable | 58,113 (2) | |
Sales Revenue | 58,113 | ||
(To record the sale of inventory on account) |
Table (6)
Working Note 2:
Calculate the amount of accounts receivable.
Sales = $58,700
Discount percentage = 1%
- Accounts receivable is an asset and it is increased by $58,113. Therefore, debit accounts receivable with $58,113.
- Sales revenue is revenue and it increases the value of equity by $58,113. Therefore, credit sales revenue with $58,113.
Record the journal entry for the freight paid.
Date | Accounts and | Debit ($) | Credit ($) |
August 15 | Accounts Receivable | 1,675 | |
Cash | 1,675 | ||
(To record the freight paid) |
Table (7)
- Accounts receivable is an asset and it is increased by $1,675. Therefore, debit accounts receivable with $1,675.
- Cash is an asset and it is decreased by $1,675. Therefore, credit cash account with $1,675.
Record the journal entry for cost of goods sold.
Date | Accounts and | Debit ($) | Credit ($) |
August 15 | Cost of Merchandise Sold | 35,000 | |
Merchandise Inventory | 35,000 | ||
(To record the cost of goods sold) |
Table (8)
- Cost of merchandise sold is an expense account and it decreases the value of equity by $35,000. Therefore, debit cost of merchandise sold account with $35,000.
- Merchandise Inventory is an asset and it is decreased by $35,000. Therefore, credit inventory account with $35,000.
Record the journal entry for the cash receipt against accounts receivable.
Date | Accounts and | Debit ($) | Credit ($) |
August 16 | Cash | 47,040 | |
Accounts Receivable | 47,040 | ||
(To record the receipt of cash against accounts receivables) |
Table (9)
- Cash is an asset and it is increased by $47,040. Therefore, debit cash account with $47,040.
- Accounts Receivable is an asset and it is increased by $47,040. Therefore, debit accounts receivable with $47,040.
Record the journal entry for the cash receipt against accounts receivable.
Date | Accounts and | Debit ($) | Credit ($) |
August 25 | Cash | 59,788 (3) | |
Accounts Receivable | 59,788 | ||
(To record the receipt of cash against accounts receivables) |
Table (10)
Working Note 3:
Calculation the amount of cash receipt.
Net accounts receivable = $58,113
Accounts receivable for freight paid = $1,675
- Cash is an asset and it is increased by $59,788. Therefore, debit cash account with $59,788.
- Accounts Receivable is an asset and it is increased by $59,788. Therefore, debit accounts receivable with $59,788.
Record the journal entry for the cash receipt against accounts receivable.
Date | Accounts and | Debit ($) | Credit ($) |
August 31 | Cash | 66,000 | |
Accounts Receivable | 66,000 | ||
(To record the receipt of cash against accounts receivables) |
Table (11)
- Cash is an asset and it is increased by $66,000. Therefore, debit cash account with $66,000.
- Accounts Receivable is an asset and it is increased by $66,000. Therefore, debit accounts receivable with $66,000.
(2)
Prepare journal entries to record the transactions of Company B during the month of August using perpetual inventory system.
Explanation of Solution
Record the journal entry of Company B during August.
Date | Account Title and |
Post Ref. |
Debit ($) |
Credit ($) |
August 1 | Merchandise Inventory | 47,040 | ||
Accounts payable | 47,040 | |||
(To record purchase on account) |
Table (12)
- Merchandise Inventory is an asset and it is increased by $47,040. Therefore, debit Merchandise Inventory account with $47,040.
- Accounts payable is a liability and it is increased by $47,040. Therefore, credit accounts payable account with $47,040.
Record the journal entry of Company B during August.
Date | Account Title and |
Post Ref. |
Debit ($) |
Credit ($) |
August 5 | Merchandise Inventory | 66,000 | ||
Accounts payable | 66,000 | |||
(To record purchase on account) |
Table (13)
- Merchandise Inventory is an asset and it is increased by $66,000. Therefore, debit Merchandise Inventory account with $66,000.
- Accounts payable is a liability and it is increased by $66,000. Therefore, credit accounts payable account with $66,000.
Record the journal entry of Company B during August.
Date | Account Title and |
Post Ref. |
Debit ($) |
Credit ($) |
August 9 | Merchandise Inventory | 2,300 | ||
Cash | 2,300 | |||
(To record freight paid) |
Table (14)
- Merchandise Inventory is an asset and it is increased by $2,300. Therefore, debit Merchandise Inventory account with $2,300.
- Cash is an asset and it is decreased by $2,300. Therefore, credit cash account with $2,300.
Record the journal entry of Company B.
Date | Account Title and |
Post Ref. |
Debit ($) |
Credit ($) |
August 15 | Merchandise Inventory | 59,788 | ||
Accounts payable | 59,788 (4) | |||
(To record purchase on account) |
Table (15)
Working Note 4:
Calculate the amount of accounts payable.
Purchases = $58,700
Discount percentage = 1%
Freight charges = $1,675
- Merchandise Inventory is an asset and it is increased by $59,788. Therefore, debit Merchandise Inventory account with $59,788.
- Accounts payable is a liability and it is increased by $59,788. Therefore, credit accounts payable account with $59,788.
Record the journal entry of Company B.
Date | Account Title and |
Post Ref. |
Debit ($) |
Credit ($) |
August 16 | Accounts payable | 47,040 | ||
Cash | 47,040 | |||
(To record payment made in full settlement less discounts) |
Table (16)
- Accounts payable is a liability and it is decreased by $47,040. Therefore, debit accounts payable account with $47,040.
- Cash is an asset and it is decreased by $47,040. Therefore, credit cash account with $47,040.
Record the journal entry of Company B.
Date | Account Title and |
Post Ref. |
Debit ($) |
Credit ($) |
August 25 | Accounts payable | 59,788 | ||
Cash | 59,788 | |||
(To record payment made in full settlement less discounts) |
Table (17)
- Accounts payable is a liability and it is decreased by $59,788. Therefore, debit accounts payable account with $59,788.
- Cash is an asset and it is decreased by $59,788. Therefore, credit cash account with $59,788.
Record the journal entry of Company B.
Date | Account Title and |
Post Ref. |
Debit ($) |
Credit ($) |
August 31 | Accounts payable | 66,000 | ||
Cash | 66,000 | |||
(To record payment made in full settlement less discounts) |
Table (18)
- Accounts payable is a liability and it is decreased by $66,000. Therefore, debit accounts payable account with $66,000.
- Cash is an asset and it is decreased by $66,000. Therefore, credit cash account with $66,000.
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