Concept explainers
1.
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.
To Record: The journal entries for purchase on account.
1.
Explanation of Solution
The following is the accounting entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
November 17, 2018 | Purchases | 35,000 (2) | ||
Accounts Payable | 35,000 | |||
(To record the purchase of inventories on account) |
Table (1)
Working Notes:
Compute the cost of each unit.
Compute the cost of purchase of inventory.
- Purchases account is an expense and it is decreased the equity value by $35,000. Therefore, debit purchase account with $35,000.
- Accounts payable is a liability and it is increased by $35,000. Therefore, credit accounts payable account with $35,000.
The following is the accounting entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
November 26, 2018 | Accounts Payable | 35,000 (2) | ||
Purchase Discounts | 700 (3) | |||
Cash | 34,300 (4) | |||
(To record the payment made to the supplier) |
Table (2)
Working Notes:
Calculate purchase discount.
Net accounts payable = $35,000 (2)
Discount percentage = 2%
Calculate cash paid.
Accounts payable = $35,000 (2)
Purchase discount = $700 (3)
- Accounts payable is a liability and it is decreased by $35,000. Therefore, debit accounts payable account with $35,000.
- Purchase discount is an income and it is increased the equity value by $700. Therefore, credit purchase discount account with $700.
- Cash is an asset and it is decreased by $34,300. Therefore, credit cash account with $34,300.
2.
To Record: The payment of accounts payable after the discount period.
2.
Explanation of Solution
The following is the accounting entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 15, 2018 | Accounts Payable | 35,000 | ||
Cash | 35,000 | |||
(To record the payment made to the supplier) |
Table (3)
- Accounts payable is a liability and it is decreased by $35,000. Therefore, debit accounts payable account with $35,000.
- Cash is an asset and it is decreased by $35,000. Therefore, credit cash account with $35,000.
3.
(a)
To Record: The purchase of inventory on account using net of purchase method.
3.
(a)
Explanation of Solution
The following is the accounting entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
November 17, 2018 | Purchases | 34,300 | ||
Accounts Payable | 34,300 (5) | |||
(To record the purchase of inventories on account) |
Table (4)
Working Notes:
Calculate net accounts payable.
Accounts payable = $35,000 (2)
Purchase discount = $700 (3)
- Purchases account is an expense and it is decreased the equity value by $34,300. Therefore, debit purchase account with $34,300.
- Accounts payable is a liability and it is increased by $34,300. Therefore, credit accounts payable account with $34,300.
Record the
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
November 26,2016 | Accounts Payable | 34,300 | ||
Cash | 34,300 | |||
(To record the payment made to the supplier) |
Table (5)
- Accounts payable is a liability and it is decreased by $34,300. Therefore, debit accounts payable account with $34,300.
- Cash is an asset and it is decreased by $34,300. Therefore, credit cash account with $34,300.
(b)
To Record: The payment of accounts payable after the discount period using net of purchase method.
(b)
Explanation of Solution
The following is the accounting entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 15, 2016 | Accounts Payable | 34,300 (5) | ||
Interest Expense | 700 | |||
Cash | 35,000 | |||
(To record the payment made to the supplier) |
Table (6)
- Accounts payable is a liability and it is decreased by $34,700. Therefore, debit accounts payable account with $34,700.
- Interest expense account is an expense and it is decreased the equity value by $700. Therefore, debit interest expense account with $700.
- Cash is an asset and it is decreased by $35,000. Therefore, credit cash account with $35,000.
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Chapter 8 Solutions
SPICELAND GEN CMB LL INTRM ACCTG; CNCT
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