It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.
Rules of Journal Entry:
- Assets: Increase in asset should be debit and decrease should be credit.
- Liabilities: Increase in liabilities should be credit and decrease should be debit.
- Equity: Increase in Equity should be credit and decrease should be debit.
- Expense: Increase in expense should be debit and decrease should be credit.
- Revenue: Increase in revenue should be credit and decrease should be debit.
Credit Card:
It refers to the card made of plastic and issued by a bank. It provides an individual to buy goods and services on credit when they have shortage of cash.
Perpetual Inventory System:
It refers to the system to record the transaction related to inventories at the time of their occurrence. Each sale and purchase is recorded at the time they occurred.
To prepare: Journal entries for the given credit card sales transactions.
Explanation of Solution
June 4 sold $650 of merchandise on credit (that had cost $400) to N.M.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 4 | Accounts Receivables (N.M) | 650 | ||
Sales | 650 | |||
(Being sales of $650 on credit is recorded ) |
Table (1)
- Since, the sales of merchandise on credit will increase the value of accounts receivables and
accounts receivable is an asset account, it is debited when it is increased. - Since, the sales of merchandise would increase the value of sales in the company and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 4 | Cost of Goods Sold | 400 | ||
Merchandise Inventory | 400 | |||
(Being cost of goods sold is recorded ) |
Table (2)
- Since the cost of merchandise sold is $400 and company is using perpetual inventory system, it is debited.
- Merchandise inventory account is credited as it is an asset account and it has decreased.
June 5 sold $6,900 of merchandise (that had cost $4,200) to customers who used their Z cards.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 5 | Cash | 6,693 | ||
Credit Card Expense | 207 | |||
Sales | 6,900 | |||
(Being sales of $6,900 is recorded payment for which is made with MasterCard credit cards ) |
Table (3)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales are revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 5 | Cost of Goods Sold | 4,200 | ||
Merchandise Inventory | 4,200 | |||
(Being cost of goods sold is recorded ) |
Table (4)
- Since the cost of merchandise sold is $4,200 and company is using perpetual inventory system, it is debited.
- Merchandise inventory account is credited as it is an asset account and it has decreased.
June 6 sold $5,850 of merchandise (that had cost $3,800) to customers who used their A cards.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 6 | Cash | 5,733 | ||
Credit Card Expense | 117 | |||
Sales | 5,850 | |||
(Being sales of $5,850 is recorded payment for which is made with MasterCard credit cards ) |
Table (5)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 6 | Cost of Goods Sold | 3,800 | ||
Merchandise Inventory | 3,800 | |||
(Being cost of goods sold is recorded ) |
Table (6)
- Since, the cost of merchandise sold is $3,800 and company is using perpetual inventory system, it is debited.
- Since, sales of merchandise have been made and asset has reduced, it is credited.
June 8 sold $4,350 of merchandise (that had cost $2,900) to customers who used their A cards.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 8 | Cash | 4,263 | ||
Credit Card Expense | 87 | |||
Sales | 4,350 | |||
(Being sales of $4,350 is recorded payment for which is made with MasterCard credit cards ) |
Table (7)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 8 | Cost of Goods Sold | 2,900 | ||
Merchandise Inventory | 2,900 | |||
(Being cost of goods sold is recorded ) |
Table (8)
- Since, the cost of merchandise sold is $2,900 and company is using perpetual inventory system, it is debited.
- Since, sales of merchandise have been made and asset has reduced, it is credited.
June 13 wrote off the account of A.M against the allowance for doubtful accounts. The $429 balance in A.M’s account stemmed from a credit sale in October of last year.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 13 | Allowance for Doubtful Account | 429 | ||
Accounts Receivable | 429 | |||
(Being write off of uncollectible accounts receivable is recorded) |
Table (9)
- Since, in allowance method of accounting for accounts receivable the amount for
bad debt expense is deducted from allowance for doubtful account which is a contra asset account, it is debited when it s decreased. - Since, in allowance method of accounting for accounts receivable the deduction is made against the account receivable account which is an asset account, it is credited when it s decreased.
June 18 received N.M’s check in full payment for the purchase of June 4.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 18 | Cash | 650 | ||
Account Receivable (N.M) | 650 | |||
(Being payment from an account receivable is recorded) |
Table (10)
- Since, payment from an accounts receivable will increase the cash and cash is an asset account, it is debited when it is increased.
- Since, payment from an accounts receivable will decrease the accounts receivable and accounts receivable is an asset account, it is credited when it is decreased.
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Chapter 7 Solutions
Gen Combo Ll Financial Accounting Fundamentals; Connect Access Card
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