Chapter 7, Problem 1PSA

To determine

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

• Assets: Increase in asset should be debit and decrease should be credit.
• Liabilities: Increase in liabilities should be credit and decrease should be debit.
• Equity: Increase in Equity should be credit and decrease should be debit.
• Expense: Increase in expense should be debit and decrease should be credit.
• Revenue: Increase in revenue should be credit and decrease should be debit.

Credit Card:

It refers to the card made of plastic and issued by a bank. It provides an individual to buy goods and services on credit when they have shortage of cash.

Perpetual Inventory System:

It refers to the system to record the transaction related to inventories at the time of their occurrence. Each sale and purchase is recorded at the time they occurred.

To prepare: Journal entries for the given credit card sales transactions.

Explanation of Solution

June 4 sold $650 of merchandise on credit (that had cost $400) to N.M.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 4	Accounts Receivables (N.M)		650
	Sales			650
	(Being sales of $650 on credit is recorded )

Table (1)

• Since, the sales of merchandise on credit will increase the value of accounts receivables and accounts receivable is an asset account, it is debited when it is increased.
• Since, the sales of merchandise would increase the value of sales in the company and sales is revenue account, it is credited when it is increased.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 4	Cost of Goods Sold		400
	Merchandise Inventory			400
	(Being cost of goods sold is recorded )

Table (2)

• Since the cost of merchandise sold is $400 and company is using perpetual inventory system, it is debited.
• Merchandise inventory account is credited as it is an asset account and it has decreased.

June 5 sold $6,900 of merchandise (that had cost $4,200) to customers who used their Z cards.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 5	Cash		6,693
	Credit Card Expense		207
	Sales			6,900
	(Being sales of $6,900 is recorded payment for which is made with MasterCard credit cards )

Table (3)

• Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
• Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
• Since, sales of merchandise have been made and sales are revenue account, it is credited when it is increased.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 5	Cost of Goods Sold		4,200
	Merchandise Inventory			4,200
	(Being cost of goods sold is recorded )

Table (4)

• Since the cost of merchandise sold is $4,200 and company is using perpetual inventory system, it is debited.
• Merchandise inventory account is credited as it is an asset account and it has decreased.

June 6 sold $5,850 of merchandise (that had cost $3,800) to customers who used their A cards.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 6	Cash		5,733
	Credit Card Expense		117
	Sales			5,850
	(Being sales of $5,850 is recorded payment for which is made with MasterCard credit cards )

Table (5)

• Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
• Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
• Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 6	Cost of Goods Sold		3,800
	Merchandise Inventory			3,800
	(Being cost of goods sold is recorded )

Table (6)

• Since, the cost of merchandise sold is $3,800 and company is using perpetual inventory system, it is debited.
• Since, sales of merchandise have been made and asset has reduced, it is credited.

June 8 sold $4,350 of merchandise (that had cost $2,900) to customers who used their A cards.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 8	Cash		4,263
	Credit Card Expense		87
	Sales			4,350
	(Being sales of $4,350 is recorded payment for which is made with MasterCard credit cards )

Table (7)

• Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
• Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
• Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 8	Cost of Goods Sold		2,900
	Merchandise Inventory			2,900
	(Being cost of goods sold is recorded )

Table (8)

• Since, the cost of merchandise sold is $2,900 and company is using perpetual inventory system, it is debited.
• Since, sales of merchandise have been made and asset has reduced, it is credited.

June 13 wrote off the account of A.M against the allowance for doubtful accounts. The $429 balance in A.M’s account stemmed from a credit sale in October of last year.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 13	Allowance for Doubtful Account		429
	Accounts Receivable			429
	(Being write off of uncollectible accounts receivable is recorded)

Table (9)

• Since, in allowance method of accounting for accounts receivable the amount for bad debt expense is deducted from allowance for doubtful account which is a contra asset account, it is debited when it s decreased.
• Since, in allowance method of accounting for accounts receivable the deduction is made against the account receivable account which is an asset account, it is credited when it s decreased.

June 18 received N.M’s check in full payment for the purchase of June 4.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jun 18	Cash		650
	Account Receivable (N.M)			650
	(Being payment from an account receivable is recorded)

Table (10)

• Since, payment from an accounts receivable will increase the cash and cash is an asset account, it is debited when it is increased.
• Since, payment from an accounts receivable will decrease the accounts receivable and accounts receivable is an asset account, it is credited when it is decreased.