Chapter 7, Problem 6PA

2.

To determine

Journalize the given transactions.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit: A debit is an accounting term that refers to the left side of an account. The term debit is be denoted by (Dr). The recording amount on the left side of the account is known as debiting.

Credit: A credit is an accounting term that refers to the right side of an account. The term credit is denoted as (Cr). The recording amount on the right side of the account is known as crediting.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all the increase in the assets, the expenses and the dividends, all the decrease in liabilities, revenues and the stockholders’ equities.
• Credit, all the increase in the liabilities, the revenues, and the stockholders’ equities, and all decreases in the assets, and the expenses.

Pass the journal entries for the given transactions:

	General Journal			Page - 10
Date	Description	Post Ref	Debit	Credit
2019
February 1	Accounts receivable	121	$4,200.00
	Sales (1)	401		$4,200.00
	(To record the sale on account to LK; Invoice 5950; Terms n/15)

Table (1)

	General Journal			Page - 11
Date	Description	Post Ref	Debit	Credit
2019
February 15	Cash (3)	101	$9,288.00
	Sales	401		$8,600.00
	Sales Tax Payable (2)	222		$688.00
	(To record the cash sales)
	Credit Card Expense (5)	521	$280.80
	Cash (6)	101	$13,759.20
	Sales	401		$13,000.00
	Sales Tax Payable (4)	222		$1,040.00
	(To record the cash sales)
February 16	Cash	101	$4,200.00
	Accounts receivable	121		$4,200.00
	(To record the receipt from LK)
	Accounts receivable (8)	121	$8,748.00
	Sales	401		$8,100.00
	Sales Tax Payable (7)	222		$648.00
	(To record the sale on account to JC; Invoice 908; Terms n/30)
February 17	Accounts receivable	121	$8,400.00
	Sales  (9)	401		$8,400.00
	(To record the sale on account to RS; Invoice 5951; Terms n/15)
February 20	Credit Card Expense (10)	521	$262.44
	Cash (11)	101	$8,485.56
	Accounts receivable	121		$8,748.00
	(To record the payment received for the sales made using the credit card)

Table (2)

	General Journal			Page - 13
Date	Description	Post Ref	Debit	Credit
2019
February 27	Cash	101	$8,400.00
	Accounts receivable	121		$8,400.00
	(To record the receipt for the sales done to RS; Invoice 5951)
February 28	Cash (13)	101	$8,370.00
	Sales	401		$7,750.00
	Sales Tax Payable (12)	222		$620.00
	(To record the cash sales)
	Credit card expense (15)	521	$324.00
	Cash (16)	101	$15,876.00
	Sales	401		$15,000.00
	Sales Tax Payable (14)	222		$1,200.00
	(To record the sales using the credit cards)
	Accounts receivable	121	$13,176.00
	Sales	401		$12,200.00
	Sales Tax Payable (17)	222		$976.00
	(To record the sale on account to JC; Invoice 908; Terms n/30)

Table (3)

Working Notes (1):

Calculate the value of Sales on February 1.

$\begin{array}{c}\text{Sales = \$6,000 }-\text{Trade Discount}\\ \text{= \$6,000}-\left(\text{\$6,000}\times 30\%\right)\\ =\text{\$6,000}-\$1,800\\ =\$4,200\end{array}$

Working Notes (2):

Calculate the value of Sales Tax Payable on February 15.

$\begin{array}{c}\text{Sales Tax Payable= Sales}\times 8\%\\ =\frac{\$8,600\times 8}{100}\\ =\$688\end{array}$

Working Notes (3):

Calculate the value of Cash on February 15.

$\begin{array}{c}\text{Cash = Sales}+\text{Sales Tax Payable}\\ =\$8,600+\$688\\ =\$9,288\end{array}$

Working Notes (4):

Calculate the value of Sales Tax Payable on February 15.

$\begin{array}{c}\text{Sales Tax Payable= Sales}\times 8\%\\ =\frac{\$13,000\times 8}{100}\\ =\$1,040\end{array}$

Working Notes (5):

Calculate the value of Credit Card Expense on February 15.

$\begin{array}{c}\text{Credit Card Expense = }\left(\text{Sales}+\text{Sales Tax Payable}\right)\times 2\%\\ =\left(\$13,000+\$1,040\right)\times 2\%\\ =\frac{\$14,040\times 2}{100}\\ =\$280.80\end{array}$

Working Notes (6):

Calculate the value of Cash on February 15.

$\begin{array}{c}\text{Cash = }\left(\text{Sales}+\text{Sales Tax Payable}\right)-\text{Credit Card Expense }\\ =\left(\$13,000+\$1,040\right)-\$82.08\\ =\$14,040-\$280.80\\ =\$13,759.20\end{array}$

Working Notes (7):

Calculate the value of Sales Tax Payable on February 16.

$\begin{array}{c}\text{Sales Tax Payable= Sales}\times 8\%\\ =\frac{\$8,100\times 8}{100}\\ =\$648\end{array}$

Working Notes (8):

Calculate the value of Accounts receivable on February 16.

$\begin{array}{c}\text{Accounts receivable = Sales}+\text{Sales Tax Payable}\\ =\$8,100+\$648\\ =\$8,748\end{array}$

Working Notes (9):

Calculate the value of Sales on February 17.

$\begin{array}{c}\text{Sales = \$12,000 }-\text{Trade Discount}\\ \text{= \$12,000}-\left(\text{\$12,000}\times 30\%\right)\\ =\text{\$12,000}-\$3,600\\ =\$8,400\end{array}$

Working Notes (10):

Calculate the value of Credit Card Expense on February 20.

$\begin{array}{c}\text{Credit Card Expense = Accounts receivable}\times 3\%\\ =\frac{\$8,748\times 3}{100}\\ =\$262.44\end{array}$

Working Notes (11):

Calculate the value of Cash on February 20.

$\begin{array}{c}\text{Cash = Accounts receivable}-\text{Credit Card Expense}\\ =\$8,748-\$262.44\\ =\$8,485.56\end{array}$

Working Notes (12):

Calculate the value of Sales Tax Payable on February 28.

$\begin{array}{c}\text{Sales Tax Payable= Sales}\times 8\%\\ =\frac{\$7,750\times 8}{100}\\ =\$620\end{array}$

Working Notes (13):

Calculate the value of Cash on February 28.

$\begin{array}{c}\text{Cash = Sales}+\text{Sales Tax Payable}\\ =\$7,750+\$620\\ =\$8,370\end{array}$

Working Notes (14):

Calculate the value of Sales Tax Payable on February 28.

$\begin{array}{c}\text{Sales Tax Payable= Sales}\times 8\%\\ =\frac{\$15,000\times 8}{100}\\ =\$1,200\end{array}$

Working Notes (15):

Calculate the value of Credit Card Expense on February 28.

$\begin{array}{c}\text{Credit Card Expense = }\left(\text{Sales}+\text{Sales Tax Payable}\right)\times 2\%\\ =\left(\$15,000+\$1,200\right)\times 2\%\\ =\frac{\$16,200\times 2}{100}\\ =\$324\end{array}$

Working Notes (16):

Calculate the value of Cash on February 28.

$\begin{array}{c}\text{Cash = }\left(\text{Sales}+\text{Sales Tax Payable}\right)-\text{Credit Card Expense }\\ =\left(\$15,000+\$1,200\right)-\$324\\ =\$16,200-\$324\\ =\$15,876\end{array}$

Working Notes (17):

Calculate the value of Sales Tax Payable on February 28.

$\begin{array}{c}\text{Sales Tax Payable = Sales}\times 8\%\\ =\frac{\$12,200\times 8}{100}\\ =\$976\end{array}$

1 and 3

To determine

Post the journal entries in the General Ledger and identify the entire credit card expense which was incurred in February.

Explanation of Solution

General ledger:

General ledger is a record of all accounts of assets, liabilities, and stockholders’ equity, necessary to prepare financial statements. In the ledger all the entries are recorded in the account order, for which the transactions actually take place.

Post the journal entries in the General Ledger:

GENERAL LEDGER
ACCOUNT: Cash					Account No.: 101
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
February 1		✔			$23,230.00
February 15		J2	$9,288.00		$32,518.00
February 15		J2	$13,759.20		$46,277.20
February 16		J2	$4,200.00		$50,477.20
February 20		J2	$8,485.56		$58,962.76
February 27		J3	$8,400.00		$67,362.76
February 28		J3	$8,370.00		$75,732.76
February 28		J3	$15,876.00		$91,608.76

Table (4)

GENERAL LEDGER
ACCOUNT: Accounts receivable					Account No.: 121
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
February 1		J1	$4,200.00		$4,200.00
February 16		J2		$4,200.00	$0.00
February 16		J2	$8,748.00		$8,748.00
February 17		J2	$8,400.00		$17,148.00
February 20		J2		$8,748.00	$8,400.00
February 27		J2		$8,400.00	$0.00
February 28		J3	$13,176.00		$13,176.00
ACCOUNT: Sales Tax Payable					Account No.: 222
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
February 15		J2		$688.00		$688.00
February 15		J2		$1,040.00		$1,728.00
February 16		J2		$648.00		$2,376.00
February 28		J3		$620.00		$2,996.00
February 28		J3		$1,200.00		$4,196.00
February 28		J3		$976.00		$5,172.00
ACCOUNT: Sales					Account No.: 401
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
February 1		J1		$4,200.00		$4,200.00
February 15		J2		$8,600.00		$12,800.00
February 15		J2		$13,000.00		$25,800.00
February 16		J2		$8,100.00		$33,900.00
February 17		J2		$8,400.00		$42,300.00
February 28		J3		$7,750.00		$50,050.00
February 28		J3		$15,000.00		$65,050.00
February 28		J3		$12,200.00		$77,250.00

Table (5)

GENERAL LEDGER
ACCOUNT: Credit Card Expense					Account No.: 521
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
February 15		J2	$280.80		$280.80
February 28		J3	$262.44		$543.24
February 28		J3	$324.00		$867.24

Table (6)

The Credit Card Expense account shows a debit balance of $867.24 at the end of the month.