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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

PURCHASES TRANSACTIONS—GROS-PRICE AND NET-PRICE METHODS Gloria’s Repair Shop had the following transactions during May:

May 2    Purchased merchandise on account from Delgado’s Supply for $900, terms 2/10, n/30.

6    Purchased merchandise on account from Goro’s Auto Care for $1,200, terms 1/10, n/30.

11    Paid the amount due to Delgado’s Supply for the purchase on May 2.

27    Paid the amount due to Goro’s Auto Care for the purchase on May 6.

  1. 1. Prepare general journal entries for these transactions using the gross-price method.
  2. 2. Prepare general journal entries for these transactions using the net-price method.

1.

To determine

Journalize the purchase transactions under gross-price method in the books of G Repair Shop.

Explanation

Gross method: The method of recording the inventory purchases without deducting any purchase discounts is referred to as gross method.

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 purchase transactions under gross-price method in the books of repair Shop G.

Transaction on May 2:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
May2Purchases 900 
     Accounts Payable, D Supply  900
  (Record purchase of merchandise on account)   

Table (1)

Description:

  • Purchase is an expense account which records the cost of inventory purchased. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • Accounts Payable, D Supply is a liability account. Since amount owed increased, liability increased, and an increase in liability is credited.

Transaction on May 6:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
May6Purchases 1,200 
     Accounts Payable, G Auto Care  1,200
  (Record purchase of merchandise on account)   

Table (2)

Description:

  • Purchase is an expense account which records the cost of inventory purchased. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • Accounts Payable, G Auto Care is a liability account. Since amount owed increased, liability increased, and an increase in liability is credited.

Transaction on May 11:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
May11Accounts Payable, D Supply 900 
   Cash  882
   Purchases Discounts  18
  (Record cash paid for purchases on account)   

Table (3)

Description:

  • Accounts Payable, D Supply is a liability account...

2.

To determine

Journalize the purchase transactions under net-price method in the books of G Repair Shop.

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