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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

JOURNAL ENTRIES—PERIODIC INVENTORY Paul Nasipak owns a business called Diamond Distributors. The following transactions took place during January of the current year. Journalize the transactions in a general journal using the periodic inventory method.

Jan.    5 Purchased merchandise on account from Prestigious Jewelers, $3,300.
    8 Paid freight charge on merchandise purchased, $300.
    12 Sold merchandise on account to Diamonds Unlimited, $4,500.
    15 Received a credit memo from Prestigious Jewelers for merchandise returned, $700.
    22 Issued a credit memo to Diamonds Unlimited for merchandise returned, $900.

To determine

Journalize the transactions in a general journal using the periodic inventory method.

Explanation

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

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

Accounting rules for journal entries:

  • To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
  • To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Journalize the transactions in a general journal using the periodic inventory method:

Table (1)

Justification:

January 5:

  • Purchases are an expense account and it decreases the value of stockholders’ equity. Hence, debit purchases account by $3,300.
  • Accounts payable is a liability account and it increases by $3,300. Hence, credit, accounts payable account by $3,300...

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