Chapter 9, Problem 1CP

Sales and Purchases

Ms. Valli of All About You Spa has decided to expand her business by adding two lines of merchandise—a selection of products used in the salon for the body, the feet, and the face, as well as logo mugs, T-shirts, and baseball caps that can provide advertising benefits. She believes she will be able to increase her profits significantly.

July Journal Entries

So that you can complete the journal entries for the month of July, Ms. Valli has also left the information you will need and directions on how to proceed.

Note that with the expansion of the business into merchandising, new accounts have been added to the chart of accounts. For example, an additional revenue account, Merchandise Sales, is needed. Because All About You Spa now needs a Purchases account, the chart of accounts needs to be modified as follows: The 500–599 range is used for the purchase-related accounts (for example, Purchases 511 and Freight In 515). Your new chart of accounts is as follows:

CHART OF ACCOUNTS FOR ALL ABOUT YOU SPA

Also note that because you will be making purchases on account and sales on account, subsidiary ledgers will be needed to track what is due from individual customers and owed to individual vendors. A listing of customers and vendors with current balances are as follows:

Checkbook Register

Purchases Invoices for Merchandise Bought on Account During July

All About You Spa will pay all freight costs associated with purchases of merchandise to the supplier. Use the new accounts Purchases 511 and Freight In 515.

Sales Invoices for Gift Certificates Sold on Account During July

All About You Spa is responsible for collecting and paying the sales tax on merchandise that it sells. The sales tax rate where All About You Spa does business is 8 percent of each sale (for example, $340.00 × 0.08 = $27.20).

Note: All gift certificates were redeemed for merchandise by the end of the month.

Other July Transactions

There were five other transactions in July. None involved cash.

Required

1. 1. Journalize the transactions for July (in date order). Ask your instructor whether you should use the special journals or the general journal for this problem.
   • If you are preparing the journal entries using Working Papers, enter your transactions beginning on page 6.
2. 2. Post the entries to the accounts receivable, accounts payable, and general ledgers.
   • Ignore this step if you are using CLGL.
3. 3. Prepare a trial balance as of July 31, 20--.
4. 4. Prepare a schedule of accounts receivable as of July 31, 20--.
5. 5. Prepare a schedule of accounts payable as of July 31, 20--.

To determine

Journalize the transactions for the month of July.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Journalize the transactions for the month of July:

Date		Account title and explanation	Post Ref.	Amount
				Debit	Credit
20--
July	1	Cash	111	$20,000
		Person AV's Capital	311		$20,000
	1	Spa Supplies	115	$410
		Accounts Payable - Company GSS	211/✓		$410
	1	Purchases	511	$5,300
		Freight In	515	$125
		Accounts Payable - Company SG	211/✓		$5,425
	1	Purchases	511	$3,692
		Freight In	515	$101
		Accounts Payable – Company LP	211/✓		$3,793
	2	Purchases	511	$2,623
		Freight In	515	$95
		Accounts Payable - Company SM	211/✓		$2,718
	2	Accounts receivable - Company LO	113/✓	$367
		Merchandise Sales	412		$340
		Sales Tax Payable	215		$27
	3	Spa Equipment	128	$8,150
		Accounts Payable -Incorporation SE	211/✓		$6,150
		Cash	111		$2,000
	3	Rent Expense	612	$1,500
		Cash	111		$1,500
	4	Accounts Receivable- Company C	113/✓	$514
		Merchandise Sales	412		$476
		Sales Tax Payable	215		$38
	5	Accounts Payable - Company GSS	211/✓	$685
		Cash	111		$685
	5	Accounts Payable - Company OS	211/✓	$125
		Cash	111		$125
	5	Promotional Expense	630	$125
		Cash	111		$125
	5	Accounts Payable - Incorporation A	211/✓	$415
		Cash	111		$415
	5	Wages Payable	212	$415
		Wages Expense	611	$1,660
		Cash	111		$2,075
	5	Office Equipment	124	$395
		Accounts Payable - Company SE	211/✓		$395
	5	Promotion Expense	630	$179
		Accounts Payable - Company OS	211/✓		$179
	5	Office Supplies	114	$109
		Accounts Payable -Company OS	211/✓		$109
	5	Purchases	511	$1,253
		Freight In	515	$65
		Accounts Payable - Company G	211/✓		$1,318
	5	Accounts receivable - Company PS	113/✓	$1,640
		Merchandise Sales	412		$1,519
		Sales Tax Payable	215		$121
	7	Cash	111	$4,867
		Merchandise Sales	412		$1,510
		Income from Services	411		$3,225
		Sales Tax Payable	215		$132
	7	Cash	111	$150
		Accounts Receivable - Company JA	113/✓		$150
	10	Accounts Receivable - Company HC	113/✓	$352
		Merchandise Sales	412		$326
		Sales Tax Payable	215		$26
	10	Accounts Receivable - Company MS	113/✓	$244
		Merchandise Sales	412		$226
		Sales Tax Payable	215		$18
	12	Wages Expense	611	$2,075
		Cash	111		$2,075
	12	Accounts Receivable - Company AFS	113/✓	$503
		Merchandise Sales	412		$466
		Sales Tax Payable	215		$37
	14	Cash	111	$200
		Accounts Receivable - Company JM	113/✓		$200
	14	Cash	111	$4,157
		Merchandise Sales	412		$1,525
		Income from Services	411		$2,510
		Sales Tax Payable	215		$122
	18	Accounts Payable - Company SE	211/✓	$520
		Cash	111		$520
	19	Wages Expense	611	$2,075
		Cash	111		$2,075
	21	Cash	111	$185
		Accounts Receivable - Company TL	113/✓		$185
	21	Cash	111	$8,246
		Merchandise Sales	412		$3,490
		Income from Services	411		$4,477
		Sales Tax Payable	215		$279
	25	Spa Equipment	128	$155
		Cash	111		$155
	26	Wages Expense	611	$2,075
		Cash	111		$2,075
	28	Laundry Expense	615	$55
		Cash	111		$55
	28	Cash	111	$110
		Accounts Receivable - Company JW	113/✓		$110
	31	Cash	111	$8,476
		Merchandise Sales	412		$4,930
		Income from Services	411		$3,151
		Sales Tax Payable	215		$394
	31	Person AV's Drawing	312	$2,500
		Cash	111		$2,500
	31	Utilities Expense	617	$125
		Cash	111		$125
	31	Utilities Expense	617	$155
		Cash	111		$155
	31	Spa Equipment	128	$2,000
		Person AV's Capital	311		$2,000

Table (1)

To determine

Post the entries to the accounts receivable, accounts payable and general ledger.

Explanation of Solution

Post the entries to the accounts receivable, accounts payable and general ledger:

General Ledger:

Sales journal
Date		Invoice  No.	Customer's name	Post Ref.	Accounts Receivable debit	Sales tax payable credit	Merchandise sales credit
20--
July	2	24	Company LO		367.20	27.20	340.00
	4	25	Company C		513.54	38.04	475.50
	5	26	Company PS		1,640.08	121.49	1,518.59
	10	27	Company HC		351.54	26.04	325.50
	10	28	Company MS		244.08	18.08	226.00
	12	29	Company AFS		503.23	37.28	465.95
	31		Totals		3,619.67	268.13	3,351.54
					(113)	(215)	(412)

Table (2)

Table (3)

Account: Cash					Account No. 111
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓			$24,597.00
	1		J6	$20,000.00		$44,597.00
	3		J6		$2,000.00	$42,597.00
	3		J6		$1,500.00	$41,097.00
	5		J7		$685.00	$40,412.00
	5		J7		$125.00	$40,287.00
	5		J7		$125.00	$40,162.00
	5		J7		$415.00	$39,747.00
	5		J7		$2,075.00	$37,672.00
	7		J8	$4,867.13		$42,539.13
	7		J8	$150.00		$42,689.13
	12		J8		$2,075.00	$40,614.13
	14		J8	$200.00		$40,814.13
	14		J9	$4,157.00		$44,971.13
	18		J9		$520.00	$44,451.13
	19		J9		$2,075.00	$42,376.13
	21		J9	$185.00		$42,561.13
	21		J9	$8,245.75		$50,806.88
	25		J9		$155.00	$50,651.88
	26		J9		$2,075.00	$48,576.88
	28		J9		$55.00	$48,521.88
	28		J9	$110.00		$48,631.88
	31		J9	$8,475.63		$57,107.51
	31		J10		$2,500.00	$54,607.51
	31		J10		$125.00	$54,482.51
	31		J10		$155.00	$54,327.51

Table (4)

Account: Accounts receivable					Account No. 113
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓			$1,273.00
	2		J6	$367.20		$1,640.20
	4		J7	$513.54		$2,153.74
	5		J8	$1,639.39		$3,793.82
	7		J8		$150.00	$3,643.82
	10		J8	$351.54		$3,995.36
	10		J8	$244.08		$4,239.44
	12		J8	$503.23		$4,742.67
	14		J8		$200.00	$4,542.67
	21		J9		$185.00	$4,357.67
	28		J9		$110.00	$4,247.67

Table (5)

Account: Office supplies					Account No. 114
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓			$1,273.00
	2		J6	$367.20		$1,640.20

Table (6)

Account: Spa supplies					Account No. 115
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓			$255.00
	5		J7	$410.00		$665.00

Table (7)

Account: Prepaid insurance					Account No. 117
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓			$700.00

Table (8)

Account: Office equipment					Account No. 124
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓			$1,345.00
	5		J7	$395.00		$1,740.00

Table (9)

Account: Accumulated Depreciation, Office equipment					Account No. 125
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓				$13.25

Table (10)

Account: Spa equipment					Account No. 128
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓			$9,125.00
	3		J6	$8,150.00		$17,275.00
	25		J9	$155.00		$17,430.00
	31		J10	$2,000.00		$19,430.00

Table (11)

Account: Accumulated Depreciation, Spa equipment					Account No. 129
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓				$150.00

Table (12)

Account: Accounts payable					Account No. 211
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓				$2,570.00
	1		J6		$410.00		$2,980.00
	1		J6		$5,425.00		$8,405.00
	1		J6		$3,793.00		$12,198.00
	2		J6		$2,718.00		$14,916.00
	3		J6		$6,150.00		$21,066.00
	5		J7	$685.00			$20,381.00
	5		J7	$125.00			$20,236.00
	5		J7	$415.00			$19,841.00
	5		J7		$395.00		$20,236.00
	5		J7		$179.00		$20,415.00
	5		J7		$109.00		$20,524.00
	5		J8		$1,318.00		$21,842.00
	18		J9	$520.00			$21,322.00

Table (13)

Account: Wages payable					Account No. 212
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓				$415.00
	5		J7	$415.00

Table (14)

Account: Sales tax payable					Account No. 215
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	2		J6		$27.20		$27.20
	4		J7		$38.04		$65.24
	5		J8		$121.49		$186.73
	7		J8		$132.13		$318.86
	10		J8		$26.04		$344.90
	10		J8		$18.08		$362.98
	12		J8		$37.28		$400.26
	14		J9		$122.00		$522.26
	21		J9		$279.20		$801.46
	31		J9		$394.40		$1,195.86

Table (15)

Account: Person AV, Capital					Account No. 311
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1	Balance	✓				$34,271.75
	1		J6		$20,000.00		54,271.75
	31		J10		$2,000.00		56,271.75

Table (16)

Account: Person AV, Drawing					Account No. 312
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	31		J10		$2,500.00		$2,500.00

Table (17)

Account: Income summary					Account No. 313
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--

Table (18)

Account: Income from services					Account No. 411
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	7		J8		$3,225.00		$3,225.00
	14		J9		$2,510.00		$5,735.00
	21		J9		$4,476.55		$10,211.55
	31		J9		$3,151.23		$13,362.78

Table (19)

Account: Merchandise sales					Account No. 412
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	2		J6		$340.00		$340.00
	4		J7		$475.50		$815.50
	5		J8		$1,518.59		$2,334.09
	7		J8		$1,510.00		$3,844.09
	10		J8		$325.50		$4,169.59
	10		J8		$226.00		$4,395.59
	12		J8		$465.95		$4,861.54
	14		J9		$1,525.00		$6,386.54
	21		J9		$3,490.00		$9,876.54
	31		J9		$4,930.00		$14,806.54

Table (20)

Account: Purchases					Account No. 511
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1		J6	$5,300.00		$5,300.00
	1		J6	$3,692.00		$8,992.00
	2		J6	$2,623.00		$11,615.00
	5		J8	$1,253.00		$12,868.00

Table (21)

Account: Freight In					Account No. 515
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	1		J6	$125.00		$125.00
	1		J6	$101.00		$226.00
	2		J6	$95.00		$321.00
	5		J8	$65.00		$386.00

Table (22)

Account: Wages expense					Account No. 611
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	5		J7	$1,660.00		$1,660.00
	12		J8	$2,075.00		$2,075.00
	19		J9	$2,075.00		$5,810.00
	26		J9	$2,075.00		$7,885.00

Table (23)

Account: Rent expense					Account No. 612
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	3		J6	$1,500.00		$1,500.00

Table (24)

Account: Office supplies expense					Account No. 613
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--

Table (25)

Account: Spa supplies expense					Account No. 614
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--

Table (26)

Account: Laundry expense					Account No. 615
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	28		J9	$55.00		$55.00

Table (27)

Account: Advertising expense					Account No. 616
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--

Table (28)

Account: Utilities expense					Account No. 617
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	31		J10	$125.00		$125.00
	31		J10	$155.00		$280.00

Table (29)

Account: Insurance expense					Account No. 618
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--

Table (30)

Account: Depreciation expense, Office equipment					Account No. 619
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--

Table (31)

Account: Depreciation expense, Spa equipment					Account No. 620
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--

Table (32)

Account: Promotional expense					Account No. 630
Date		Item	Post Ref.	Debit	Credit	Balance
						Debit	Credit
20--
July	5		J7	$125.00		$125.00
				$179.00		$179.00

Table (33)

Accounts receivable ledger:

Accounts receivable ledger
Name : Company AFS
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	12		J8	$503.23		$503.23

Table (34)

Accounts receivable ledger
Name : Company JA
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1		✓			$350.00
	7		J8	$150.00		$200.00

Table (35)

Accounts receivable ledger
Name : Company C
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	4		J7	$513.54		$513.54

Table (36)

Accounts receivable ledger
Name : Company HC
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	10		J8	$351.54		$351.54

Table (37)

Accounts receivable ledger
Name : Company TL
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1	Balance	✓			$345.00
	21		J9		$185.00	$160.00

Table (38)

Accounts receivable ledger
Name : Company LO
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	2		J6	$367.20		$367.20

Table (39)

Accounts receivable ledger
Name : Company MS
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	10		J8	$244.08		$244.08

Table (40)

Accounts receivable ledger
Name : Company JM
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1		✓			$468.00
	14		J8		$200.00	$268.00

Table (41)

Accounts receivable ledger
Name : Company PS
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	5		J8	$1,640.08		$1,640.08

Table (42)

Accounts receivable ledger
Name : Company JW
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1	Balance	✓			$110.00
	28		J8		$110.00	$110.00

Table (43)

Accounts payable ledger:

Accounts payable ledger
Name : Incorporation A
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1	Balance	✓			$415.00
August	5			$415.00

Table (44)

Accounts payable ledger
Name : Company G
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	5		J8		$1,318.00	$1,318.00

Table (45)

Accounts payable ledger
Name : Company GSS
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1	Balance	✓			$685.00
	1		J6		$410.00	$1,095.00
	5		J7	$685.00		$410.00

Table (46)

Accounts payable ledger
Name : Company LP
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1	Balance	J6		$3,793.00	$3,793.00

Table (47)

Accounts payable ledger
Name : Company OS
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1	Balance	✓			$125.00
	5		J7	$125.00
	5		J7		$179.00	$179.00
	5		J7		$109.00	$288.00

Table (48)

Accounts payable ledger
Name : Incorporation SE
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1	Balance	✓
	3		J6		$6,150.00	$6,150.00

Table (49)

Accounts payable ledger
Name : Company SG
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1		J6		$5,425.00	$5,425.00

Table (50)

Accounts payable ledger
Name : Company SM
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	2		J6		$2,718.00	$2,718.00

Table (51)

Accounts payable ledger
Name : Company SE
Date		Item	Post Ref.	Debit	Credit	Balance
20--
July	1	Balance	✓			$1,345.00
	5		J7		395	$1,740.00
	18		J9	520		$1,220.00

Table (52)

To determine

Prepare trial balance as of July 31.

Explanation of Solution

Trial balance: Trial balance is a summary of all the asset, liability, and equity accounts and their balances.

Prepare the trial balance.

Company AAY
Trial balance
As on July 31, 20--
Account name	Debit	Credit
Cash	$54,327.51
Accounts Receivable	$4,247.67
Office Supplies	$234.00
Spa Supplies	$665.00
Prepaid Insurance	$700.00
Office Equipment	$1,740.00
Accumulated Depreciation, Office Equipment		$13.25
Spa Equipment	$19,430.00
Accumulated Depreciation, Spa Equipment		$150.00
Accounts Payable		$21,322.00
Sales Tax Payable		$1,195.86
Person AV, Capital		$56,271.75
Person AV, Drawing	$2,500.00
Income from Services		$13,362.78
Merchandise Sales		$14,806.54
Purchases	$12,868.00
Freight In	$386.00
Wages Expense	$7,885.00
Rent Expense	$1,500.00
Laundry Expense	$55.00
Utilities Expense	$280.00
Miscellaneous Expense	$304.00
Total	$107,122.18	$107,122.18

Table (53)

Thus, the total of trial balance of Company AAY is $107,122.18.

To determine

Prepare a schedule of accounts receivable.

Explanation of Solution

Schedule of accounts receivable: A schedule of accounts receivable is a subsidiary ledger that list out the accounts of credit customers individually in alphabetical or numeric order with their respective balances.

Prepare a schedule of accounts receivable:

Company AAY
Schedule of Accounts receivable
July 31, 20--
Particulars	Amount
Company AFS	$503.23
Company JA	$200.00
Company C	$513.54
Company HC	$351.54
Incorporation TL	$160.00
Company LO	$367.20
Company MS	$244.08
Company JM	$268.00
Company PS	1,640.08
Total Accounts receivable	$4,247.67

Table (54)

To determine

Prepare a schedule of Accounts payable.

Explanation of Solution

Schedule of accounts payable: A schedule of accounts payable lists is a subsidiary ledger that list out the accounts of creditors (vendors/suppliers) individually in alphabetical or numeric order with their respective balances.

Prepare a schedule of Accounts payable:

Company AAY
Schedule of Accounts payable
July 31, 20--
Particulars	Amount
Company G	$1,318.00
Company GSS	$410.00
Company LP	$3,793.00
Company OS	$288.00
Incorporation SE	$6,150.00
Company SG	$5,425.00
Company SM	$2,718.00
Company SE	$1,220.00
Total Accounts payable	$21,322.00

Table (55)