College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570



College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Sales and Purchases

Ms. Valli of All About You Spa has decided to expand her business by adding two lines of merchandise—a selection of products used in the salon for the body, the feet, and the face, as well as logo mugs, T-shirts, and baseball caps that can provide advertising benefits. She believes she will be able to increase her profits significantly.

July Journal Entries

So that you can complete the journal entries for the month of July, Ms. Valli has also left the information you will need and directions on how to proceed.

Note that with the expansion of the business into merchandising, new accounts have been added to the chart of accounts. For example, an additional revenue account, Merchandise Sales, is needed. Because All About You Spa now needs a Purchases account, the chart of accounts needs to be modified as follows: The 500–599 range is used for the purchase-related accounts (for example, Purchases 511 and Freight In 515). Your new chart of accounts is as follows:



Also note that because you will be making purchases on account and sales on account, subsidiary ledgers will be needed to track what is due from individual customers and owed to individual vendors. A listing of customers and vendors with current balances are as follows:


Checkbook Register



Purchases Invoices for Merchandise Bought on Account During July

All About You Spa will pay all freight costs associated with purchases of merchandise to the supplier. Use the new accounts Purchases 511 and Freight In 515.


Sales Invoices for Gift Certificates Sold on Account During July

All About You Spa is responsible for collecting and paying the sales tax on merchandise that it sells. The sales tax rate where All About You Spa does business is 8 percent of each sale (for example, $340.00 × 0.08 = $27.20).


Note: All gift certificates were redeemed for merchandise by the end of the month.

Other July Transactions

There were five other transactions in July. None involved cash.



  1. 1. Journalize the transactions for July (in date order). Ask your instructor whether you should use the special journals or the general journal for this problem.
    • If you are preparing the journal entries using Working Papers, enter your transactions beginning on page 6.
  2. 2. Post the entries to the accounts receivable, accounts payable, and general ledgers.
    • Ignore this step if you are using CLGL.
  3. 3. Prepare a trial balance as of July 31, 20--.
  4. 4. Prepare a schedule of accounts receivable as of July 31, 20--.
  5. 5. Prepare a schedule of accounts payable as of July 31, 20--.


To determine

Journalize the transactions for the month of July.


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

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

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

Journalize the transactions for the month of July:

DateAccount title and explanationPost Ref.Amount
  Person AV's Capital311 $20,000
 1Spa Supplies115$410 
  Accounts Payable - Company GSS211/✓ $410
  Freight In515$125 
  Accounts Payable - Company SG211/✓ $5,425
  Freight In515$101 
  Accounts Payable – Company LP211/✓ $3,793
  Freight In515$95 
  Accounts Payable - Company SM211/✓ $2,718
 2Accounts receivable - Company LO113/✓$367 
  Merchandise Sales412 $340
  Sales Tax Payable215 $27
 3Spa Equipment128$8,150 
  Accounts Payable -Incorporation SE211/✓ $6,150
  Cash111 $2,000
 3Rent Expense612$1,500 
  Cash111 $1,500
 4Accounts Receivable- Company C113/✓$514 
  Merchandise Sales412 $476
  Sales Tax Payable215 $38
 5Accounts Payable - Company GSS211/✓$685 
  Cash111 $685
 5Accounts Payable - Company OS211/✓$125 
  Cash111 $125
 5Promotional Expense630$125 
  Cash111 $125
 5Accounts Payable - Incorporation A211/✓$415 
  Cash111 $415
 5Wages Payable212$415 
  Wages Expense611$1,660 
  Cash111 $2,075
 5Office Equipment124$395 
  Accounts Payable - Company SE211/✓ $395
 5Promotion Expense630$179 
  Accounts Payable - Company OS211/✓ $179
 5Office Supplies114$109 
  Accounts Payable -Company OS211/✓ $109
  Freight In515$65 
  Accounts Payable - Company G211/✓ $1,318
 5Accounts receivable - Company PS113/✓$1,640 


To determine

Post the entries to the accounts receivable, accounts payable and general ledger.


To determine

Prepare trial balance as of July 31.


To determine

Prepare a schedule of accounts receivable.


To determine

Prepare a schedule of Accounts payable.

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