Chapter 8, Problem 6PB

Belladonna Company (buyer) and Sachi, Inc. (seller), engaged in the following transactions during February 2019:

Belladonna Company

Sachi, Inc.

INSTRUCTIONS

1.  1.            Open the accounts payable ledger account and accounts receivable ledger account indicated below for both Belladonna Company and Sachi, Inc. Enter the balances as of February 1, 2019.
2.  2.            Journalize the transactions above in a general journal for both Belladonna Company and Sachi, Inc. Begin the journals for both companies with page 12.
3.  3.            Post the transactions to the appropriate accounts in the general ledger and the accounts payable subsidiary ledger for Belladonna Company.
4.  4.            Post the transactions to the appropriate accounts in the general ledger and the accounts receivable subsidiary ledger for Sachi, Inc.

GENERAL LEDGER ACCOUNTS—BELLADONNA COMPANY

201 Accounts Payable, $6,000 Cr.

ACCOUNTS PAYABLE LEDGER ACCOUNT—BELLADONNA COMPANY

Sachi, Inc., $6,000

GENERAL LEDGER ACCOUNTS—SACHI, INC.

111 Accounts Receivable, $6,000 Dr.

ACCOUNTS RECEIVABLE LEDGER ACCOUNT—SACHI, INC.

Belladonna Company, $6,000

Analyze: What is the balance of the accounts payable for Sachi, Inc., in the Belladonna Company accounts payable subsidiary ledger? What is the balance of the accounts receivable for Belladonna Company in the Sachi, Inc., accounts receivable subsidiary ledger?

To determine

Create the accounts payable ledger account and accounts receivable ledger account of company B and company SI indicating the balances on given date.

Explanation of Solution

Ledgers:

Ledgers are T accounts to which journal entries are posted. Ledgers are used to ascertain transactions of a particular account and its closing balance for the period. The day-to-day transactions of the business are recorded in their respective ledgers.

The accounts payable ledger account of company B is as follows:

Accounts Payable
Date	Particular	Debit ($)	Credit ($)	Balance ($)
February 1,2019	Balance			6,000

Table (1)

The accounts receivable ledger account of company SI is as follows:

Accounts Receivable
Date	Particular	Debit ($)	Credit ($)	Balance ($)
February 1,2019	Balance			6,000

Table (2)

To determine

Record the entries into the general journal of the company B and the company SI.

Explanation of Solution

The recording of entries in the general journal for company B is as follows:

Recording the payment made:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 8, 2019	Accounts payable/Company SI		6,000
	Purchases discounts			120
	Cash			5,880
	(to record the payment made and receiving purchases discount)

Table (3)

• • The accounts payable account is liability and the account balance is decreasing. Therefore, accounts payable account is debited.
• • The purchases discount account is a contra expense account. The account has the normal credit balance and it is increasing. Therefore, it is credited.
• • The cash account is an asset account and the account balance is decreasing. Therefore, it is credited.

Recording the purchases on credit:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 9, 2019	Purchases		4,800
	Accounts payable/Company SI			4,800
	(to record the inventory purchased on account with terms2/10, n/30)

Table (4)

• • The purchases account is an expense account. The purchases account has normal debit balance and the balance is increasing. Therefore, it is debited.
• • Accounts payable is liability and the balance of accounts payable is increasing. Therefore, it is credited.

Recording the purchases returned and credit memorandum received:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 15, 2019	Accounts payable/Company SI		400
	Purchases returns and allowances			400
	(to record the inventory returned and credit memorandum received)

Table (5)

• • The accounts payable account is a liability account. The accounts payable account has the normal credit balance and it is decreasing. Therefore, it is debited.
• • The purchase returns and allowances account is contra expenses account. The account has the normal credit balance and it is increasing. Therefore, it is credited.

Recording the payment made:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 18, 2019	Accounts payable/Company SI		4,400
	Purchases discounts			88
	Cash			4,312
	(to record the payment made and receiving purchases discount)

Table (6)

• • The accounts payable is liability and the account balance is decreasing. Therefore, accounts payable account is debited.
• • The purchases discount account is a contra expense account. The account has the normal credit balance and it is increasing. Therefore, it is credited.
• • The cash account is an asset account and the account balance is decreasing. Therefore, it is credited.

Recording the purchases on credit:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 28, 2019	Purchases		7,200
	Accounts payable/Company SI			7,200
	(to record the inventory purchased on account with terms2/10, n/30)

Table (7)

• • The purchases account is an expense account. The purchases account has normal debit balance and the balance is increasing. Therefore, it is debited.
• • Since, the accounts payable is liability and the account balance is increasing. Therefore, it is credited.

The recording of entries in the general journal for company SI is as follows:

Recording the payment received from the buyer:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 8, 2019	Sales Discount		120
	Cash		5,880
	Accounts Receivable/Company B			6,000
	(to record the payment received and discount provided)

Table (8)

• • The sales discount account is identified as contra revenue account and it has normal debit balance which is increasing. Therefore, it is debited.
• • The cash account is debited. This is because the cash account is asset account and the account balance is increasing. The amount in cash account would be calculated by subtracting the merchandise returned by the buyer and the sales discount provided.
• • The accounts receivable account is an asset account and the account balance is decreasing. Therefore, it is credited.

Recording of the merchandise sold:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 9, 2019	Accounts Receivable/ Company B		4,800
	Sales			4,800
	(to record the merchandise sold on credit on terms of 2/10, n/30)

Table (9)

• • The accounts receivable is debited. This is because the accounts receivables account is an asset account and the account balance is increasing.
• • The sales account is credited. This because the sales account is identified as the revenue account and the revenue is generated.

Recording the returned merchandise sold and the credit memorandum:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 15, 2019	Sales returns and allowances		400
	Accounts Receivable/ Company B			400
	(to record the merchandise returned and issued credit memorandum)

Table (10)

• • The sales returns and allowances account is identified as contra revenue account with normal debit balance and it is increasing. Therefore, it is debited.
• • The account receivable account is an asset account and the account balance is decreasing. Therefore, the accounts receivable account is credited.

Recording the payment received from the buyer:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 18, 2019	Sales Discount		88
	Cash		4,312
	Accounts Receivable/Company B			4,400
	(to record the timely payment received from the account receivable)

Table (11)

• • The sales discount account is identified as contra revenue account and it has normal debit balance which is increasing. Therefore, it is debited.
• • The cash account is debited. This is because the cash account is asset account and the account balance is increasing. The amount in cash account would be calculated by subtracting the merchandise returned by the buyer and the sales discount provided.
• • The accounts receivable account is asset account and the account balance is decreasing. Therefore, it is credited.

Recording of the merchandise sold and sales tax payable:

GENERAL JOURNAL				Page 12
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
February 28, 2019	Accounts Receivable/ Company B		7,200
	Sales			7,200
	(to record the merchandise sold on credit on terms of 2/10, n/30)

Table (12)

• • The accounts receivables account is debited. This is because the accounts receivables account is an asset account and the account balance is increasing.
• • The sales account is credited. This because the sales account is identified as the revenue account and the revenue is generated.

Working Note:

Calculation of purchases discount:

The purchases discounts are received by the buyer for fulfilling the terms of timely payment to seller for purchases. The terms related to paying on timely basis with the company SI was agreed as 2/10, n/30. The terms 2/10, n/30 means the buyer is entitled to receive two percent of purchase discount on the purchases amount. The buyer will be entitled to the discount only if the payment is paid within ten days after provided invoice.

$\begin{array}{c}\text{Amount of purchases discount}=\left[\begin{array}{c}\left(\begin{array}{l}\text{Purchases amount}-\text{Purchases reutrns}\\ -\text{Freight charges}\end{array}\right)\\ \times \left(\frac{\text{Percentage of purchases discount}}{100}\right)\end{array}\right]\\ =\left(\$4,800-\$400\right)\times \frac{2}{100}\\ =\$88\end{array}$

The amount calculated as purchase discount would be $88.

Calculation for sales discount:

The sales discount is provided to the customer by the seller fulfilling the terms of making the timely payments as per 2/10, n/30 terms. The customer is entitled to receive the one percent of sales discount on the merchandise sold if the payment is made with ten days of invoice provided.

$\begin{array}{c}\text{Amount of sales discount}=\left(\text{Sales}-\text{Sales returns}\right)\times \left(\frac{\text{Percentage of sales discount}}{100}\right)\\ =\left(\$4,800-\$400\right)\times \frac{2}{100}\\ =\$88\end{array}$

The amount calculated as per given information would be $88.

To determine

Record the transactions to the appropriate accounts in the general ledger and the accounts payable subsidiary ledger for company B.

Explanation of Solution

The posting of general journal in the appropriate accounts in the general ledger and the accounts payable subsidiary ledger is as follows:

Cash
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			-
February 8, 2019			5,880	(5,880)
February 18, 2019			4,312	(10,192)

Table (13)

Accounts Payable/Company SI
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			6,000
February 8, 2019		6,000		-
February 9, 2019			4,800	4,800
February 15, 2019		400		4,400
February 18, 2019		4,400		-
February 28, 2019			7,200	7,200

Table (14)

Accounts Payable
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			6,000
February 8, 2019		6,000		-
February 9, 2019			4,800	4,800
February 15, 2019		400		4,400
February 18, 2019		4,400		-
February 28, 2019			7,200	7,200

Table (15)

Purchases
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			-
February 9, 2019		4,800		4,800
February 28, 2019		7,200		12,000

Table (16)

Purchases Returns and Allowances
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			-
February 15, 2019			400	400

Table (17)

Purchases Discounts
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			-
February 8, 2019			120	120
February 18, 2019			88	208

Table (18)

To determine

Record the transactions to the appropriate accounts in the general ledger and the accounts payable subsidiary ledger for company SI.

Explanation of Solution

Cash
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			-
February 8, 2019		5,880		5,880
February 18, 2019		4,312		10,192

Table (19)

Accounts Receivable/Company B
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			6,000
February 8, 2019			6,000	-
February 9, 2019		4,800		4,800
February 15, 2019			400	4,400
February 18, 2019			4,400	-
February 28, 2019		7,200		7,200

Table (20)

Accounts Receivable
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			6,000
February 8, 2019			6,000	-
February 9, 2019		4,800		4,800
February 15, 2019			400	4,400
February 18, 2019			4,400	-
February 28, 2019		7,200		7,200

Table (21)

Sales
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			-
February 9, 2019			4,800	4,800
February 28, 2019			7,200	12,000

Table (22)

Sales Returns and Allowances
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			-
February 15, 2019		400		400

Table (23)

Sales Discounts
Date	Particular	Debit ($)	Credit ($)	Balance ($)
Feburary 1,2019	Balance			-
February 8, 2019		120		120
February 18, 2019		88		208

Table (24)

The balance of accounts payable account for company SI in company B’s subsidiary ledger is $7,200 credit balance. The balance of accounts receivable account for company B in company SL’s subsidiary ledger is $7,200 debit balance.