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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

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

Sales-related and purchase-related transactions for seller and buyer using perpetual inventory system

The following selected transactions were completed during August between Summit Company and Beartooth Co.:

Aug. 1. Summit Company sold merchandise on account to Beartooth Co., $48,000, terms FOB destination, 2/15, n/eom. The cost of the merchandise sold was $28,800.
2. Summit Company paid freight of $1,150 for delivery of merchandise sold to Beartooth Co. on August 1.
5. Summit Company sold merchandise 011 account to Beartooth Co., $66,000, terms FOB shipping point, n/45- The cost of the merchandise sold was $40,000.
9. Bcartooth Co. paid freight of $2,300 on August 5 purchase from Summit Company.
15. Summit Company sold merchandise on account to Beartooth Co., $58,700, terms FOB shipping point, 1/10, n/30. Summit Company paid freight of $1,675, which was added to the invoice. The cost of the merchandise sold was $35,000.
16. Beartooth Co. paid Summit Company for purchase of August 1.
20. Summit Company paid Beartooth Co. a refund of $1,800 for defective merchandise In the August 1 purchase. Beartooth Co. agreed to keep the merchandise.
25. Beartooth Co. paid Summit Company on account for purchase of August 15.
31. Summit Company granted a customer allowance (credit memo) to Beartooth Co. for $6,000 (invoiced amount) for merchandise that was returned from the August 1 purchase. The cost of the merchandise returned was $3,200.

Instructions

Journalize the August transactions for (1) Summit Company and (2) Beartooth Co.

(1)

To determine

Journal entry: Journal is the book of original entry whereby all the financial transactions are recorded in chronological order. Under this method each transaction has two sides, debit side and credit side. Total amount of debit side must be equal to the total amount of credit side. In addition, it is the primary books of accounts for any entity to record the daily transactions and processed further till the presentation of the financial statements.

The following are the rules of debit and credit:

  1. 1. Increase in assets and expenses accounts are debited. Decrease in liabilities and stockholders’ equity accounts are debited.
  2. 2. Increase in liabilities, revenues, and stockholders’ equity accounts are credited. Decreases in all asset accounts are credited.

To Determine:  Preparejournal entries to record the transactions of Company S during the month of August using perpetual inventory system.

Explanation

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

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

Date Accounts and Explanation Debit ($) Credit ($)
August 1 Accounts Receivable 47,040 (1)  
         Sales Revenue   47,040
  (To record the sale of inventory on account)    

Table (1)

Working Note:

Calculate the amount of accounts receivable.

Sales = $48,000

Discount percentage = 2%

Amount of accounts receivable} = (SalesDiscount)=Sales(Sales×1%)= $48,000 – ($48,000×2%)= $48,000$960=$47,040 (1)

Explanation

  • Accounts receivable is an asset and it is increased by $47,040. Therefore, debit accounts receivable with $47,040.
  • Sales revenue is revenue and it increases the value of equity by $47,040. Therefore, credit sales revenue with $47,040.

Record the journal entry for cost of goods sold.

Date Accounts and Explanation Debit ($) Credit ($)
August 1 Cost of Merchandise Sold 28,800  
  Merchandise Inventory   28,800
  (To record the cost of goods sold)    

Table (2)

Explanation

  • Cost of merchandise sold is an expense account and it decreases the value of equity by $28,800. Therefore, debit cost of merchandise sold account with $28,800.
  • Merchandise Inventory is an asset and it is decreased by $28,800. Therefore, credit inventory account with $28,800.

Record the journal entry for delivery expense.

Date Accounts and Explanation Debit ($) Credit ($)
August 2 Delivery expense 1,150  
  Cash   1,150
  (To record the payment of delivery expenses)    

Table (3)

Explanation

  • Delivery expense is an expense account and it decreases the value of equity by $1,150. Therefore, debit delivery expense account with $1,150.
  • Cash is an asset and it is decreased by $1,150. Therefore, credit cash account with $1,150.

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

Date Accounts and Explanation Debit ($) Credit ($)
August 5 Accounts Receivable 66,000  
         Sales Revenue   66,000
  (To record the sale of inventory on account)    

Table (4)

Explanation

  • Accounts receivable is an asset and it is increased by $66,000. Therefore, debit accounts receivable with $66,000.
  • Sales revenue is revenue and it increases the value of equity by $66,000. Therefore, credit sales revenue with $66,000.

Record the journal entry for cost of goods sold.

Date Accounts and Explanation Debit ($) Credit ($)
August 5 Cost of Merchandise Sold 40,000  
  Merchandise Inventory   40,000
  (To record the cost of goods sold)    

Table (5)

Explanation

  • Cost of merchandise sold is an expense account and it decreases the value of equity by $40,000. Therefore, debit cost of merchandise sold account with $40,000.
  • Merchandise Inventory is an asset and it is decreased by $40,000. Therefore, credit inventory account with $40,000.

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

Date Accounts and Explanation Debit ($) Credit ($)
August 15 Accounts Receivable 58,113 (2)  
         Sales Revenue   58,113
  (To record the sale of inventory on account)    

Table (6)

Working Note:

Calculate the amount of accounts receivable.

Sales = $58,700

Discount percentage = 1%

Amount of accounts receivable} = (SalesDiscount)=Sales(Sales×1%)= $58,700 – ($58,700×1%)= $58,700$587=$58,113 (2)

Explanation

  • Accounts receivable is an asset and it is increased by $58,113. Therefore, debit accounts receivable with $58,113.
  • Sales revenue is revenue and it increases the value of equity by $58,113. Therefore, credit sales revenue with $58,113.

Record the journal entry for the freight paid.

Date Accounts and Explanation Debit ($) Credit ($)
August 15 Accounts Receivable 1,675  
         Cash   1,675
  (To record the freight paid)    

Table (7)

Explanation

  • Accounts receivable is an asset and it is increased by $1,675

(2)

To determine
  Preparejournal entries to record the transactions of Company B during the month of August using perpetual inventory system.

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