Explanation Journalizing: Journalizing refers to that process in which the transactions of an organization are recorded in a sequence. Based on the recorded entries, the accounts are posted to the relevant ledger accounts. The general journal is prepared for recoding the transactions is as follows: Recording the purchases on credit: GENERAL JOURNAL Page 1 Date Account Title and Explanation Post Ref. Debit ($) Credit ($) September 2, 2019 Purchases 6,600 Freight In 310 Accounts payable/Shop CS 6,910 (to record the inventory purchased on account with terms n/30) Table (1) • The purchases account is an expense account. The purchases account has normal debit balance and the balance is increasing. Therefore, it is debited. • The freight In account is an expense account and it has normal debit balance which is increasing. Therefore, freight In account is debited. • The accounts payable account is credited. This is because the accounts payable account is a liability account and its balance is increasing. Recording the purchases on credit: GENERAL JOURNAL Page 1 Date Account Title and Explanation Post Ref. Debit ($) Credit ($) September 3, 2019 Purchases 12,200 Accounts payable/Company AS 12,200 (to record the inventory purchased on account with terms3/10, n/30) Table (2) • The purchases account is an expense account. The purchases account has normal debit balance and the balance is increasing. Therefore, it is debited. • The accounts payable account is a liability account and its balance is increasing. Therefore, it is credited. Recording the purchases returned and credit memorandum received: GENERAL JOURNAL Page 1 Date Account Title and Explanation Post Ref. Debit ($) Credit ($) September 7, 2019 Accounts payable/Shop CS 1,000 Purchases returns and allowances 1,000 (to record the inventory returned and credit memorandum received) Table (3) • The accounts payable account is a liability account. The accounts payable account has the normal credit balance and it is decreasing. Therefore, it is debited. • The purchase returns and allowances account is contra expenses account. The account has the normal credit balance and it is increasing. Therefore, it is credited. Recording the purchases on credit: GENERAL JOURNAL Page 1 Date Account Title and Explanation Post Ref. Debit ($) Credit ($) September 11, 2019 Purchases 5,000 Accounts payable/Company CMC 5,000 (to record the inventory purchased on account with termsn/30) Table (4) • The purchases account is an expense account. The purchases account has normal debit balance and the balance is increasing. Therefore, it is debited. • The accounts payable account is credited. This is because the accounts payable account is a liability account and its balance is increasing. Recording the payment made: GENERAL JOURNAL Page 1 Date Account Title and Explanation Post Ref. Debit ($) Credit ($) September 12, 2019 Accounts payable/Company AS 12,200 Purchases discounts 366 Cash 11,834 (to record the payment made and receving purchases discount) Table (5) • The accounts payable account is liability and its balance is decreasing. Therefore, accounts payable account is debited. • The purchases discount account is a contra expense account. The account has the normal credit balance and its increasing. Therefore, it is credited. • The cash account is an asset account and its balance is decreasing. Therefore, it is credited. Working Note: The purchases discounts are received by the buyer from the seller. The purchases discounts are received by the buyer for fulfilling the terms of timely payment to seller for purchases. The terms related to paying on timely basis with the company AS were agreed as 3/10, n/30. The terms 3/10, n/30 means the buyer is entitled to receive three percent of purchase discount on the purchases amount. The buyer will be entitled to the discount only if the payment is paid within ten days after provided invoice. Purchases discount = ( ( Purchases amount − Purchases reutrns − Freight charges ) × ( Percentage of Purchases discount 100 ) ) = $ 12 , 200 × 3 100 = $ 366 The amount calculated as purchase discount would be $366

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ISBN: 9781260255157

Author: Haddock

Publisher: MCG CUSTOM

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Chapter 8 Solutions

COLLEGE ACCOUNTING (LL)W/ACCESS>CUSTOM<

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