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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:

Apr. 5    Issued Check No. 429 to Standard Industries for merchandise purchased March 27, $8,000, terms 2/10, n/30. Payment is made within the discount period.

19    Issued Check No. 430 to Finest Company for merchandise purchased April 10, $5,300, terms 1/10, n/30. A credit memo had been received on April 12 from Finest Company for merchandise returned, $300. Payment is made within the discount period after deduction for the return dated April 12.

21    Issued Check No. 431 to Funny Follies for merchandise purchased March 22, $3,250, terms n/30.

29    Issued Check No. 432 to Classic Data for merchandise purchased April 20, $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 April 5:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
April5Accounts Payable, S Industries 8,000 
   Cash  7,840
   Purchases Discounts  160
  (Record cash paid for purchases on account)   

Table (1)

Description:

  • Accounts Payable, S Industries 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}($8,000–$0)×2%= $160

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)= $8,000–$0–$160= $7,840

Transaction on April 19:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
April19Accounts Payable, Company F 5,000 
   Cash  4,950
   Purchases Discounts  50
  (Record cash paid for purchases on account)   

Table (2)

Description:

  • Accounts Payable, Company F 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 3:

Compute purchases discount value.

Purchases discounts = {(Purchases–Purchase returns and allowances) × Discount percentage}($5,300–$300)×1%= $50

Working Note 4:

Compute amount of cash paid (Refer to Working Note 3 for purchase discount value)

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