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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Journal entries using the periodic inventory system

The following selected transactions were completed by Air Systems Company during January of the current year. Air Systems Company uses the periodic inventory system.

Jan. 2. Purchased $18,200 of merchandise on account, FOB shipping point, terms 2/15, n/30.
5. Paid freight of $ 190 on the January 2 purchase.
6. Returned $2,750 of the merchandise purchased on January 2.
13. Sold merchandise on account. $37,300, FOB destination, 1/10, n/30, The cost of merchandise sold was $22,400.
15. Paid freight of $215 for the merchandise sold on January 13
17. Paid for the purchase of January 2 less the return and discount.
23. Received payment on account for the sale of January 13 less the discount.

Journalize the entries to record the transactions of Air Systems Company.

To determine

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.

Sales is an activity of selling the merchandise inventory of a business.

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

Explanation

Record the journal entry in the books of Company A.

Journal Entry
Date Account Title and Explanation Post Ref. Debit ($) Credit ($)
January 2 Purchases 18,200
Accounts Payable 18,200
(To record purchases of inventory on account)

Table (1)

Explanation:

  • Purchases account is an expense and it is decreased the equity value by $18,200. Therefore, debit purchase account with $18,200.
  • Accounts payable is a liability and it is increased by $18,200. Therefore, credit accounts payable account with $18,200.

Record the journal entry for freight charges paid.

Journal Entry
Date Account Title and Explanation Post Ref. Debit ($) Credit ($)
January 5 Freight-In 190
Cash 190
(To record the payment of freight charges)

Table (2)

Explanation:

  • Freight-In is an expense and it is increased by $190. Therefore, debit freight-in account with $190.
  • Cash is an asset and it is decreased by $190. Therefore, credit cash account with $190.

Record the journal entry for purchase returned.

Journal Entry
Date Account Title and Explanation Post Ref.

Debit

($)

Credit

($)

January 6 Accounts Payable 2,750
Purchases Returns and Allowances 2,750
(To record the purchases return)

Table (3)

Explanation:

  • Accounts payable is a liability and it is decreased by $2,750. Therefore, debit accounts payable account with $2,750.
  • Purchases returns and allowances account is an expense and it is increased the equity value by $2,750. Therefore, credit purchases returns and allowances account with $2,750.

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

Date Accounts and Explanation Debit ($) Credit ($)
January 13 Accounts Receivable 36,927  
 Sales Revenue   36,927 (1)
(To record the sale of inventory on account)

Table (4)

Calculate sales revenue amount.

Accounts receivable = $37,300

Sales discount percentage = 1%

Sales revenue = $37,300($37,300×1%) = $36,927 (1)

Explanation:

  • Accounts Receivable is an asset and it is increased by $36,927. Therefore, debit account receivable with $36,927.
  • Sales revenue is revenue and it increases the value of equity by $36,927. Therefore, credit sales revenue with $36,927.

Record the journal entry for delivery charges paid.

Journal Entry
Date Account Title and Explanation Post Ref

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