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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

Sales-related and purchase-related transactions using periodic inventory system

Selected transactions for Babcock Company during November of the current year are listed in Problem 6-3A.

Instructions

Journalize the entries to record the transactions of Babcock Company for November using the periodic inventory system.

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.

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

Explanation

Record the journal entry in the books of Company B.

Date Account Title and Explanation Debit ($) Credit ($)
November 3 Purchases 63,750
Accounts Payable 63,750 (1)
(To record purchases of inventory on account)

Table (1)

Working Note:

Calculate the amount of accounts payable.

Purchases = $85,000

Trade discount percentage = 25%

Amount of accounts payable} = (PurchasesTradeDiscount)=Purchases(Purchases×25%)= $85,000 – ($85,000×25%)= $85,000$21,250=$63,750 (1)

Explanation:

  • Purchases account is an expense and it is decreased the equity value by $63,750. Therefore, debit purchase account with $63,750.
  • Accounts payable is a liability and it is increased by $63,750. Therefore, credit accounts payable account with $63,750.

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

Date Accounts and Explanation Debit ($) Credit ($)
November 4 Cash 37,680  
       Sales   37,680
(To record the sale of inventory on cash)

Table (2)

Explanation

  • Cash is an asset and it is increased by $37,680. Therefore, debit cash account with $37,680.
  • Sales is revenue and it increases the value of equity by $37,680. Therefore, credit sales account with $37,680.

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

Date Account Title and Explanation Debit ($) Credit ($)
November 5 Purchases 47,500
Freight-In 810
Accounts Payable 48,310
(To record the payment of freight charges)

Table (3)

Explanation:

  • Purchases account is an expense and it is decreased the equity value by $47,500. Therefore, debit purchase account with $47,500.
  • Freight-In is an expense and it is increased by $810. Therefore, debit freight-in account with $810.
  • Accounts payable is a liability and it is increased by $48,310. Therefore, credit accounts payable account with $48,310.

Record the journal entry for purchase returned.

Date Account Title and Explanation

Debit

($)

Credit

($)

November 6 Accounts Payable 13,500
Purchases Returns and Allowances 13,500
(To record the purchases return)

Table (4)

Explanation:

  • Accounts payable is a liability and it is decreased by $13,500. Therefore, debit accounts payable account with $13,500.
  • Purchases returns and allowances account is an expense and it is increased the equity value by $13,500. Therefore, credit purchases returns and allowances account with $13,500.

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

Date Accounts and Explanation Debit ($) Credit ($)
November 8 Accounts Receivable 15,600  
       Sales   15,600
(To record the sale of inventory on account)

Table (5)

Explanation

  • Accounts Receivable is an asset and it is increased by $15,600. Therefore, debit accounts receivable with $15,600.
  • Sales revenue is revenue and it increases the value of equity by $15,600. Therefore, credit sales revenue with $15,600.

Record the journal entry for the due amount paid.

Journal Entry
Date Account Title and Explanation Post Ref.

Debit

($)

Credit

($)

November 13 Accounts Payable 50,250 (2)
       Purchase Discount 199 (3)
       Cash 9,971 (4)
(To record paying cash on purchases after discounts and returns)

Table (6)

Working Notes:

Calculate accounts payable amount.

Net accounts payable = $63,750 (1)

Purchase return = $13,500

Accounts payable = Net PurchasePurchase returns=$63,750$13,500=$50,250 (2)

Calculate purchase discount.

Accounts payable = $50,250 (2)

Discount percentage = 2%

Purchase discount = $50,250 × 2100 = $1,005 (3)

Calculate cash paid.

Accounts payable = $63,750

Purchase discount = $1,005 (3)

Cash paid = (Accounts payable, net – Purchase discount)= $50,250$1,005= $49,245 (4)

Explanation:

  • Accounts payable is a liability and it is decreased by $50,250

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