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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

CASH PAYMENTS TR ANS ACTIONS Sam Santiago operates a retail variety store. The books include a general journal and an accounts payable ledger. Selected account balances on May 1 are as follows:

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The following are the transactions related to cash payments for the month of May:

May 1    Issued Check No. 426 in payment of May rent (Rent Expense), $2,400.

3    Issued Check No. 427 to Mueller’s Distributors in payment of merchandise purchased on account, $3,600, less a 3% discount. Check was written for $3,492.

7    Issued Check No. 428 to Van Kooning in partial payment of merchandise purchased on account, $5,500. A cash discount was not allowed.

12    Issued Check No. 429 to Fantastic Toys for merchandise purchased on account, $5,200, less a 1% discount. Check was written for $5,148.

15    Issued Check No. 430 to City Power and Light (Utilities Expense), $1,720.

18    Issued Check No. 431 to A-1 Warehouse for a cash purchase of merchandise, $4,800.

26    Issued Check No. 432 to Goya Outlet for merchandise purchased on account, $3,800, less a 2% discount. Check was written for $3,724.

30    Issued Check No. 433 to Mercury Transit Company for freight charges on merchandise purchased (Freight-In), $1,200.

31    Issued Check No. 434 to Town Merchants for a cash purchase of merchandise, $3,000.

Required

  1. 1. Enter the transactions starting with page 9 of a general journal.
  2. 2. Post from the general journal to the general ledger and the accounts payable ledger. Use general ledger account numbers as shown in the chapter.

1.

To determine

Journalize the cash payment transactions for the month of May.

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.

Journalize the cash payment transactions for the month of May.

Transaction on May 1:

Page: 9
DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
May1Rent Expense5212,400 
   Cash101 2,400
  (Record payment of rent expense)   

Table (1)

Description:

  • Rent Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on May 3:

Page: 9
DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
May3Accounts Payable, M Distributors202/✓3,600 
   Cash101 3,492
   Purchases Discounts501.2 108
  (Record cash paid for purchases on account)   

Table (2)

Description:

  • Accounts Payable, M Distributors is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
  • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
  • Purchases Discounts is a contra-purchases or contra-costs account, and contra-purchases accounts increase the equity value, and an increase in equity is credited.

Working Note 1:

Compute purchases discount value.

Purchases discounts = {(Purchases–Purchase returns and allowances) × Discount percentage}($3,600–$0)×3%= $108

Transaction on May 7:

Page: 9
DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
May7Accounts Payable, VK202/✓5,500 
   Cash101 5,500
  (Record cash paid for purchases on account)   

Table (3)

Description:

  • Accounts Payable, VK is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
  • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Transaction on May 12:

Page: 9
DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
May12Accounts Payable, F Toys202/✓5,200 
   Cash101 5,148
   Purchases Discounts501.2 52
  (Record cash paid for purchases on account)   

Table (4)

Description:

  • Accounts Payable, F Toys is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
  • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
  • Purchases Discounts is a contra-purchases or contra-costs account, and contra-purchases accounts increase the equity value, and an increase in equity is credited.

Working Note 2:

Compute purchases discount value.

Purchases discounts = {(Purchases–Purchase returns and allowances) × Discount percentage}($5,200–$0)×1%= $52

Transaction on May 15:

Page: 9
DateAccount Titles and ExplanationPost Ref

2.

To determine

Post the given transactions into the accounts of the general ledger, and the suppliers account in accounts payable ledger.

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