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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 5, Problem 8PB
Textbook Problem
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Sales 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.

To determine

Record the purchase transactions and sales 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 activity of acquiring the merchandise inventory of a business.

Record the journal entry for purchases of inventory along with freight charges.

DateAccount Title and ExplanationDebit ($)Credit ($)
July 3Purchases61,200 
 Freight-In1,450 
 Accounts Payable 62,650 (1)
 (To record the payment of freight charges)  

Table (1)

Working note (1):

Calculate the amount of accounts payable.

Purchases = $72,000

Trade discount percentage = 15%

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

  • • 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.

DateAccount Title and ExplanationDebit ($)Credit ($)
July 5Purchases33,450 
 Accounts Payable 33,450
 (To record purchases of inventory on account)  

Table (2)

  • • 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.

DateAccounts and ExplanationDebit ($)Credit ($)
July 6Accounts Receivable 36,000 
        Sales 36,000
 (To record the sale of inventory on credit)  

Table (3)

  • • 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.

DateAccount Title and Explanation

Debit

($)

Credit

($)

July 7Accounts Payable6,850 
 Purchases Returns and Allowances 6,850
 (To record the purchases return)  

Table (4)

  • • 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.

Journal Entry
DateAccount Title and ExplanationPost Ref.

Debit

($)

Credit

($)

July 13Accounts Payable 62,650 (1) 
        Purchase Discount  1,253 (2)
        Cash  61,397 (3)
 (To record paying cash on purchases after discounts and returns)   

Table (5)

Working note (2):

Calculate purchase discount.

Accounts payable = $62,650 (1)

Discount percentage = 2%

Purchase discount = $62,650 × 2100 = $1,253

Working note (3):

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

  • • 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.

Journal Entry
DateAccount Title and ExplanationPost Ref.

Debit

($)

Credit

($)

July 15Accounts Payable 26,600 (4) 
        Purchase Discount  532 (5)
        Cash  26,068 (6)
 (To record paying cash on purchases after discounts and returns)   

Table (6)

Working note (4):

Calculate accounts payable amount

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Chapter 5 Solutions

Financial And Managerial Accounting
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