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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

JOURN ALIZING CASH PAYMENTS TR ANS ACTIONS Enter the following cash payments transactions in a general journal:

Sept. 5    Issued Check No. 318 to Whittle Corp. for merchandise purchased August 28, $5,000, terms 2/10, n/30. Payment is made within the discount period.

12    Issued Check No. 319 to Martin Company for merchandise purchased September 2, $8,500, terms 1/10, n/30. A credit memo had been received on September 8 from Martin Company for merchandise returned, $400. Payment is made within the discount period after deduction for the return dated September 8.

19    Issued Check No. 320 to Cloud Systems for merchandise purchased August 20, $6,100, terms n/30.

27    Issued Check No. 321 to Dynamic Data for merchandise purchased September 17, $7,000, terms 2/10, n/30. Payment is made within the discount period.

To determine

Journalize the transactions related to cash payments.

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 transactions related to cash payments.

Transaction on September 5:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
September5Accounts Payable, Corporation W 5,000 
   Cash  4,900
   Purchases Discounts  100
  (Record cash paid for purchases on account)   

Table (1)

Description:

  • Accounts Payable, Corporation W 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}($5,000–$0)×2%= $100

Working Note 2:

Compute amount of cash paid (Refer to Working Note 1 for purchase discount value).

Cash  paid = (Purchases on account value–Purchases returns and allowances–Purchases discount value)= $5,000–$0–$100= $4,900

Transaction on September 12:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
September12Accounts Payable, Company M 8,100 
   Cash  8,019
   Purchases Discounts  81
  (Record cash paid for purchases on account)   

Table (2)

Description:

  • Accounts Payable, Company M is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
  • Cash is an asset account

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