Purchase-related transactions using periodic inventory system

Selected transactions for Niles Co. during March of the current year are listed in Problem 6-1B.

Instructions

Journalize the entries to record the transactions of Niles Co. for March 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 under periodic inventory system.

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

Table (1)

Explanation:

• 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.

Table (2)

Explanation:

• 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.

Table (3)

Working Notes:

Calculate accounts payable amount.

Purchases = $43,250

Freight paid = 650

Accounts payable = Purchase + Freight paid=$43,250+$650=$43,900 (1)

Calculate purchase discount.

Accounts payable = $43,250

Discount percentage = 2%

Purchase discount = $43,250 × 2100 = $865 (2)

Calculate cash paid.

Accounts payable = $43,250

Purchase discount = $865 (2)

Freight paid = $650

Cash paid = (Accounts payable, net – Purchase discount) + Freight charges= ($43,250 – $865) + $650= $43,035 (3)

Explanation:

• 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.

Table (4)

Explanation:

• 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.

Table (5)

Explanation:

• 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.

Table (6)

Explanation:

• 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.

Table (7)

Explanation:

• Freight-In is an expense and it is increased by $140