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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Record the following transactions in general journal form on the books of the seller (Fuentes Company) and then on the books of the buyer (Lowe Company) using the periodic inventory system.

Fuentes Company

  1. a. Sold merchandise on account to Lowe Company, $1,500; terms 2/10, n/30.
  2. b. Issued a credit memo to Lowe Company for damaged merchandise, $100.
  3. c. Lowe Company paid the account in full within the discount period.

Lowe Company

  1. a. Purchased merchandise on account from Fuentes Company, $1,500; terms 2/10, n/30.
  2. b. Received a credit memo from Fuentes Company for damaged merchandise, $100.
  3. c. Paid Fuentes Company in full within the discount period.

To determine

Journalize the transactions on the books of seller for F Company and books of buyer for L Company.

Explanation

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

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journal entries for the transactions on the books of seller for F Company:

  1. a. Sale of merchandise to L company in terms of 2/10, n/30.
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--
Accounts receivable, L company 1,500 
   Sales  1,500
  (Record sale of merchandise to L company, terms 2/10,n/30   

Table (1)

  • Accounts Receivable is an asset account and it is increased. Therefore, debit the accounts receivable.
  • Sales is a revenue account and it is increased. Therefore, credit the sales.
  1. b. Issued a credit memo to L Company for damaged merchandise, $100.
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--
Sales Return and allowances 100 
   Accounts receivable, L Company  100
  (Issued credit memo for return of merchandise)   

Table (2)

  • Sales return and allowance is a contra revenue account and it is decreased. Therefore, debit the sales return and allowance.
  • Accounts Receivable is an asset account and it is decreased. Therefore, credit the accounts receivable.
  1. c. L Company paid the account in full within the discount period.
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
20--
Cash 1,372 
  Sales discount 28 
   Accounts receivable, L Company  1,400
  (Received payment in full)   

Table (3)

  • Cash is an asset account and it is increased. Therefore, debit the cash...

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