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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—PERPETUAL INVENTORY Joan Ziemba owns a small variety store. The following transactions took place during March of the current year. Journalize the transactions in a general journal using the perpetual inventory method.

Mar.    3 Purchased merchandise on account from City Galleria, $2,900.
    7 Paid freight charge on merchandise purchased, $225.
    13 Sold merchandise on account to Amber Specialties, $3,400. The cost of the merchandise was $2,200.
    18 Received a credit memo from City Galleria for merchandise returned, $650.
    22 Issued a credit memo to Amber Specialties for merchandise returned, $600. The cost of the merchandise was $320.

To determine

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

Explanation

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

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:

March 3:

  • Merchandise inventory is an asset account and it increases due to purchase of merchandise. Hence, debit merchandise inventory account by $2,900.
  • Accounts payable is a liability account and it increases due to merchandised purchased on account. Hence, credit, accounts payable account by $2,900.

March 7:

  • Merchandise inventory is an asset account and it increases due to purchase of merchandise. Hence, debit merchandise inventory account by $225.
  • Cash is an asset account and it decreases due to payment made on freight. Hence, credit, cash account by $225.

March 13:

  • Accounts receivable is an asset account and it increases due to sale of merchandise on account...

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