Concept explainers
Purchase-related transactions using periodic inventory system
Selected transactions for Niles Co. during March of the current year are listed in Problem 5-1B.
Instructions
Record the purchase transactions under periodic inventory system.
Explanation of Solution
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 are an activity of acquiring the merchandise inventory of a business.
Record the journal entry for purchases of inventory along with freight charges.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
March 1 | Purchases | 43,250 | ||
Freight-In | 650 | |||
Accounts Payable | 43,900 | |||
(To record the payment of freight charges) |
Table (1)
- • Purchases account is an expense and it is decreased the equity value by $43,250. Therefore, debit purchase account with $43,250.
- • Freight-In is an expense and it is increased by $650. Therefore, debit freight-in account with $650.
- • Accounts payable is a liability and it is increased by $43,900. Therefore, credit accounts payable account with $43,900.
Record the journal entry in the books of Company C.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
March 5 | Purchases | 19,175 | ||
Accounts Payable | 19,175 | |||
(To record purchases of inventory on account) |
Table (2)
- • Purchases account is an expense and it is decreased the equity value by $19,175. Therefore, debit purchase account with $19,175.
- • Accounts payable is a liability and it is increased by $19,175. Therefore, credit accounts payable account with $19,175.
Record the journal entry for the due amount paid.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
March 10 | Accounts Payable | 43,900 (1) | ||
Purchase Discount | 865 (2) | |||
Cash | 43,035 (3) | |||
(To record paying cash on purchases after discounts and returns) |
Table (3)
Working Note (1):
Calculate accounts payable amount.
Purchases = $43,250
Freight paid = 650
Working Note (2):
Calculate purchase discount.
Accounts payable = $43,250
Discount percentage = 2%
Working Note (3):
Calculate cash paid.
Accounts payable = $43,250
Purchase discount = $865 (2)
Freight paid = $650
- • Accounts payable is a liability and it is decreased by $43,900. Therefore, debit accounts payable account with $43,900.
- • Purchase discount is an income and it is increased the equity value by $865. Therefore, credit purchase discount account with $865.
- • Cash is an asset and it is decreased by $43,035. Therefore, credit cash account with $43,035.
Record the journal entry for purchases of inventory.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
March 13 | Purchases | 15,550 | ||
Accounts Payable | 15,550 | |||
(To record purchases of inventory on account) |
Table (4)
- • Purchases account is an expense and it is decreased the equity value by $15,550. Therefore, debit purchase account with $15,550.
- • Accounts payable is a liability and it is increased by $15,550. Therefore, credit accounts payable account with $15,550.
Record the journal entry for purchase returned.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
March 14 | Accounts Payable | 3,750 | ||
Purchases Returns and Allowances | 3,750 | |||
(To record the purchases return) |
Table (5)
- • Accounts payable is a liability and it is decreased by $3,750. Therefore, debit accounts payable account with $3,750.
- • Purchases returns and allowances account is an expense and it is increased the equity value by $3,750. Therefore, credit purchases returns and allowances account with $3,750.
Record the journal entry for purchases of inventory.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
March 18 | Purchases | 13,560 | ||
Accounts Payable | 13,560 | |||
(To record purchases of inventory on account) |
Table (6)
- • Purchases account is an expense and it is decreased the equity value by $13,560. Therefore, debit purchase account with $13,560.
- • Accounts payable is a liability and it is increased by $13,560. Therefore, credit accounts payable account with $13,560.
Record the journal entry for freight paid.
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
March 18 | Freight-In | 140 | ||
Cash | 140 | |||
(To record the payment of freight charges) |
Table (7)
- • Freight-In is an expense and it is increased by $140. Therefore, debit freight-in account with $140.
- • Cash is an asset and it is decreased by $140. Therefore, credit cash account with $140.
Record the journal entry for purchases of inventory.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
March 19 | Purchases | 6,500 | ||
Accounts Payable | 6,500 | |||
(To record purchases of inventory on account) |
Table (8)
- • Purchases account is an expense and it is decreased the equity value by $6,500. Therefore, debit purchase account with $6,500.
- • Accounts payable is a liability and it is increased by $6,500. Therefore, credit accounts payable account with $6,500.
Record the journal entry for the due amount paid.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
March 23 | Accounts Payable | 11,800 (4) | ||
Purchase Discount | 236 (5) | |||
Cash | 11,564 (6) | |||
(To record paying cash on purchases after discounts and returns) |
Table (9)
Working Note (4):
Calculate accounts payable amount.
Purchase = $15,550
Purchase returns = $3,750
Working Note (5):
Calculate purchase discount.
Net accounts payable = $11,800 (4)
Discount percentage = 2%
Working Note (6):
Calculate cash paid.
Accounts payable = $11,800 (4)
Purchase discount = $236 (5)
- • Accounts payable is a liability and it is decreased by $11,800. Therefore, debit accounts payable account with $11,800.
- • Purchase discount is an income and it is increased the equity value by $236. Therefore, credit purchase discount account with $236.
- • Cash is an asset and it is decreased by $11,564. Therefore, credit cash account with $11,564.
Record the journal entry for the due amount paid.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
March 29 | Accounts Payable | 6,500 | ||
Purchase Discount | 130 (7) | |||
Cash | 6,370 (8) | |||
(To record paying cash on purchases after discounts and returns) |
Table (10)
Working Note (7):
Calculate purchase discount.
Net accounts payable = $6,500
Discount percentage = 2%
Working Note (8):
Calculate cash paid.
Accounts payable = $6,500
Purchase discount = $130 (7)
- • Accounts payable is a liability and it is decreased by $6,500. Therefore, debit accounts payable account with $6,500.
- • Purchase discount is an income and it is increased the equity value by $130. Therefore, credit purchase discount account with $130.
- • Cash is an asset and it is decreased by $6,370. Therefore, credit cash account with $6,370.
Record the journal entry for the due amount paid.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
March 31 | Accounts Payable | 13,560 | ||
Cash | 13,560 | |||
(To record paying cash on purchases after discounts and returns) |
Table (11)
- • Accounts payable is a liability and it is decreased by $13,560. Therefore, debit accounts payable account with $13,560.
- • Cash is an asset and it is decreased by $13,560. Therefore, credit cash account with $13,560.
Record the journal entry for the due amount paid.
Journal Entry | ||||
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
March 31 | Accounts Payable | 19,175 | ||
Cash | 19,175 | |||
(To record paying cash on purchases after discounts and returns) |
Table (12)
- • Accounts payable is a liability and it is decreased by $19,175. Therefore, debit accounts payable account with $19,175.
- • Cash is an asset and it is decreased by $19,175. Therefore, credit cash account with $19,175.
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Chapter 5 Solutions
Financial And Managerial Accounting
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