BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 6, Problem 6.8BPR
Textbook Problem

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

Selected transactions for Essex Company during July of the current year are listed in Problem 6-3B.

Instructions

Journalize the entries to record the transactions of Essex Company for July using the periodic inventory system.

Expert Solution
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 of Solution

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

Date Account Title and Explanation Debit ($) Credit ($)
July 3 Purchases 61,200
Freight-In 1,450
Accounts Payable 62,650 (1)
(To record the payment of freight charges)

Table (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 (1)

Explanation:

  • 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.

Date Account Title and Explanation Debit ($) Credit ($)
July 5 Purchases 33,450
Accounts Payable 33,450
(To record purchases of inventory on account)

Table (2)

Explanation:

  • 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.

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

Table (3)

Explanation

  • 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.

Date Account Title and Explanation

Debit

($)

Credit

($)

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

Table (4)

Explanation:

  • 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
Date Account Title and Explanation Post Ref.

Debit

($)

Credit

($)

July 13 Accounts 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 Notes:

Calculate purchase discount.

Accounts payable = $62,650 (1)

Discount percentage = 2%

Purchase discount = $62,650 × 2100 = $1,253 (2)

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 (3)

Explanation:

  • 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
Date Account Title and Explanation Post Ref.

Debit

($)

Credit

($)

July 15 Accounts 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 Notes:

Calculate accounts payable amount

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Chapter 6 Solutions

Accounting
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