Appendix Sales-related and purchase-related transactions using periodic inventory system Selected transactions for Essex Company during July of the current year are listed in Problem 5-3B. Instructions Journalize the entries to record the transactions of Essex Company for July using the periodic inventory system.

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.

Purchases is an activity of acquiring the merchandise inventory of a business.

To Record: The purchase transactions and sales transactions under periodic inventory system.

Calculate the amount of accounts payable.

Purchases = $72,000

Trade discount percentage = 15%

Amount of accounts payable} = (Purchases − Trade Discount)= Purchases − (Purchases × 15%)= $72,000 – ($72,000 × 15%)= $72,000 − $10,800= $61,200 (1)

Explanation:

• Purchases account is an expense and it is decreased the equity value by $61,200. Therefore, debit purchase account with $61,200.
• Freight-In is an expense and it is increased by $1,450. Therefore, debit freight-in account with $1,450.
• Accounts payable is a liability and it is increased by $62,650. Therefore, credit accounts payable account with $62,650.

Record the journal entry in the books of Company B.

Table (2)

Explanation:

• Purchases account is an expense and it is decreased the equity value by $33,450. Therefore, debit purchase account with $33,450.
• Accounts payable is a liability and it is increased by $33,450. Therefore, credit accounts payable account with $33,450.

Record the journal entry for the sale of inventory on cash.

Table (3)

Explanation

• Accounts receivable is an asset and it is increased by $36,000. Therefore, debit accounts receivable account with $36,000.
• Sales is revenue and it increases the value of equity by $36,000. Therefore, credit sales account with $36,000.

Record the journal entry for purchase returned.

Table (4)

Explanation:

• Accounts payable is a liability and it is decreased by $6,850. Therefore, debit accounts payable account with $6,850.
• Purchases returns and allowances account is an expense and it is increased the equity value by $6,850. Therefore, credit purchases returns and allowances account with $6,850.

Record the journal entry for the due amount paid.

Table (5)

Working Notes:

Calculate purchase discount.

Accounts payable = $62,650 (1)

Discount percentage = 2%

Purchase discount = $62,650 × 2100 = $1,253 (2)

Calculate cash paid.

Accounts payable = $62,650

Purchase discount = $1,253 (3)

Cash paid = (Accounts payable, net – Purchase discount)= $62,650 − $1,253= $61,397 (3)

Explanation:

• Accounts payable is a liability and it is decreased by $62,650. Therefore, debit accounts payable account with $62,650.
• Purchase discount is an income and it is increased the equity value by $1,253. Therefore, credit purchase discount account with $1,253.
• Cash is an asset and it is decreased by $61,397. Therefore, credit cash account with $61,397.

Record the journal entry for the due amount paid.

Table (6)

Working Notes:

Calculate accounts payable amount.

Net accounts payable = $33,450

Purchase return = $6,850

Accounts payable = Net Purchase − Purchase returns=$33,450–$6,850=$26,600 (4)

Calculate purchase discount