Concept explainers
(a)
Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.
The following are the rules of debit and credit:
- 1. Increase in assets and expenses accounts are debited. Decrease in liabilities and
stockholders’ equity accounts are debited. - 2. Increase in liabilities, revenues, and stockholders’ equity accounts are credited. Decreases in all asset accounts are credited.
To Record: The journal entries in books of Company GH using perpetual inventory system during April.
(a)
Explanation of Solution
Prepare the journal entries for Company GH during April:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
April 5 | Inventory | 1,500 | ||
Accounts payable | 1,500 | |||
(To record purchase on account) | ||||
April 7 | Inventory | 80 | ||
Cash | 80 | |||
(To record Freight-in on purchase) | ||||
April 9 | Accounts payable | 200 | ||
Inventory | 200 | |||
(To record the purchase returns) | ||||
April 10 | Accounts receivable | 1,340 | ||
Sales Revenue | 1,340 | |||
(To record sales on account) | ||||
Cost of goods sold | 820 | |||
Inventory | 820 | |||
(To record cost of goods sold) | ||||
April 12 | Inventory | 830 | ||
Accounts payable | 830 | |||
(To record purchase on account) | ||||
April 14 | Accounts payable | 1,300 (1) | ||
Inventory | 39 (2) | |||
Cash | 1,261 (3) | |||
April 17 | Accounts payable | 30 | ||
Inventory | 30 | |||
(To record purchase returns) | ||||
April 20 | Accounts receivable | 810 | ||
Sales revenue | 810 | |||
(To record sales on account) | ||||
Cost of goods sold | 550 | |||
Inventory | 550 | |||
(To record cost of goods sold) | ||||
April 21 | Accounts payable | 800 (4) | ||
Inventory | 8 (5) | |||
Cash | 792 (6) | |||
(To record payment in full settlement) | ||||
April 27 | Sales returns and allowances | 80 | ||
Accounts receivable | 80 | |||
(To record sales returns) | ||||
April 30 | Cash | 1,220 | ||
Accounts receivable | 1,220 | |||
(To record payment received on account) |
Table (1)
Working notes:
Calculate the amount of net accounts payable.
Inventory = $1,500
Purchase returns = $200
Calculate the amount of purchase discount.
Net accounts payable = $1,300 (1)
Discount percentage = 3%
Calculate the amount of cash paid.
Net accounts payable = $1,300 (1)
Purchase discount = $39 (2)
Calculate the amount of net accounts payable.
Inventory = $830
Purchase returns = $30
Calculate the amount of purchase discount.
Net accounts payable = $800 (4)
Discount percentage = 1%
Calculate the amount of cash paid.
Net accounts payable = $800 (4)
Purchase discount = $8 (5)
(b)
T Accounts: T- accounts are prepared for all the business transactions. First, journal entries are passed and then transferred to the respective ledger accounts where, they are recorded and summarized in either side of the ‘T’ format. It is divided into two parts by a vertical line, that is, the left side and the right side. The left side of the T-account is known as the debit side and the right side of the T-account is known as the credit side. The account name appears on the top of the T-account.
To
(b)
Explanation of Solution
The following is the T-account for cash.
Cash Account:
Cash Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
April 1 | Beginning Balance | 2,500 | April 7 | Inventory | 80 | |
April 30 | Accounts receivable | 1,220 | April 14 | Accounts payable | 1,261 | |
April 21 | Accounts payable | 792 | ||||
April 30 | Ending Balance | 1,587 | ||||
April 30 | Total | 3,720 | April 30 | Total | 3,720 |
Table (2)
Accounts Receivable Account:
Accounts Receivable Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
April 10 | Sales revenue | 1,340 | April 27 | Cash | 80 | |
April 20 | Sales revenue | 810 | April 30 | Sales discount | 1,220 | |
April 30 | Ending Balance | 850 | ||||
April 30 | Total | 2,150 | April 30 | Total | 2,150 |
Table (3)
Inventory Account:
Inventory Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
April 1 | Beginning Balance | 3,500 | April 9 | Accounts payable | 200 | |
April 5 | Accounts payable | 1,500 | April 10 | Cost of goods sold | 820 | |
April 7 | Cash | 80 | April 14 | Accounts payable | 39 | |
April 12 | Accounts payable | 830 | April 17 | Accounts payable | 30 | |
April 20 | Cost of goods sold | 550 | ||||
April 21 | Accounts payable | 8 | ||||
April 30 | Ending Balance | 4,263 | ||||
April 30 | Total | 5,910 | April 30 | Total | 5,910 |
Table (4)
Accounts Payable Account:
Accounts Payable Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
April 9 | Inventory | 200 | April 5 | Inventory | 1,500 | |
April 14 | Inventory | 39 | April 12 | Inventory | 830 | |
April 14 | Cash | 1,261 | ||||
April 17 | Inventory | 30 | ||||
April 21 | Inventory | 8 | ||||
April 21 | Cash | 792 | ||||
April 30 | Total | 2,330 | April 30 | Total | 2,330 |
Table (5)
Common Stock Account:
Common Stock Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
April 30 | Ending Balance | 6,000 | April 1 | Beginning Balance | 6,000 | |
April 30 | Total | 6,000 | April 30 | Total | 6,000 |
Table (6)
Sales Revenue Account:
Sales Revenue Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
April 30 | Ending Balance | 2,150 | April 10 | Accounts receivable | 1,340 | |
April 20 | Accounts receivable | 810 | ||||
April 30 | Total | 2,150 | April 31 | Total | 2,150 |
Table (7)
Sales Return and Allowances Account:
Sales Return and Allowances Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
April 27 | Accounts receivable | 80 | April 30 | Ending Balance | 80 | |
April 30 | Total | 80 | April 30 | Total | 80 |
Table (8)
Cost of Goods Sold Account:
Cost of Goods Sold Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
April 10 | Inventory | 820 | April 30 | Ending Balance | 1,370 | |
April 20 | Inventory | 550 | ||||
April 30 | Total | 1,370 | April 30 | Total | 1,370 |
Table (9)
(c)
To determine: Prepare trial balance for Company GH on April 30, 2017.
(c)
Answer to Problem 5.3AP
The following table shows the trial balance of Company GH as on April 30, 2017.
COMPANY GH Trial Balance As on April 30,2017 | ||
Account Title | Debit | Credit |
Cash | $1,587 | |
Accounts Receivable | $850 | |
Inventory | $4,263 | |
Common Stock | $6,000 | |
Sales Revenue | $2,150 | |
Sales Returns and Allowances | $80 | |
Cost of Goods Sold | $1,370 | |
Total | $8,150 | $8,150 |
Table (10)
Explanation of Solution
The trial balance as shown in Table (10) is prepared after placing the journals to ledger account. It will show the ending balance of all the accounts. Here, the total debit balance is matched with the credit balance.
Therefore, the total debit balance and credit balance of Company GH is $8,150.
(d)
The income statement: This is a financial statement that shows the net income earned, or net loss suffered by a company, through reporting all the revenues earned, and expenses incurred, by the company over a specific period of time. An income statement is also known as an operations statement, an earnings statement, a revenue statement, or a
To Prepare: The income statement through gross profit for the month ended April 30, 2017.
(d)
Explanation of Solution
Following is the income statement of Company GH.
Company GH Income statement (Partial) For the Month Ended April, 2017 | |
Particulars | Amount |
Sales Revenue | $2,150 |
Less: Sales returns and allowances | $80 |
Net sales | $2,070 |
Less: Cost of goods sold | $1,370 |
Gross profit | $700 |
Table (11)
Therefore, the gross profit of Company GH is $700.
Want to see more full solutions like this?
Chapter 5 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
- At the beginning of the current season on April 1, the ledger of Riverbed's Discorama showed Cash $1,800, Inventory $2,400, and Owner's Capital $4,200. The following transactions were completed during April 2022. Purchased golf discs, bags, and other inventory on account from Mumford Co. $1,200, FOB shipping point, terms 2/10, n/60. Apr. 5 7. Paid freight on the Mumford purchase $50. Received credit from Mumford Co. for merchandise returned $100. 10 Sold merchandise on account for $980, terms n/30. The merchandise sold had a cost of $588. 12 Purchased disc golf shirts and other accessories on account from Saucer Sportswear $640, terms 1/10, n/30. 14 Paid Mumford Co. in full, less discount. 17 Received credit from Saucer Sportswear for merchandise returned $40. 20 Made sales on account for $700, terms n/30, The cost of the merchandise sold was $400. 21 Paid Saucer Sportswear in full, less discount. 27 Granted an allowance to customers for clothing that did not fit $10. Enter the…arrow_forwardAt the beginning of the current season on April 1, the records of Ayayai Pro Shop showed Cash $2,950, Inventory $3,500, and Common Stock $6,450. The following transactions occurred during April 2017. Apr. 5 Purchased golf bags, clubs, and balls on account from Arnie Co. $2,500. 9 Received credit from Arnie Co. for merchandise returned $700. 10 Sold merchandise on account to members $1,340. The merchandise sold had a cost of $920. 12 Purchased golf shoes, sweaters, and other accessories on account from Woods Sportswear $1,050. 14 Paid Arnie Co. in full. 17 Received credit from Woods Sportswear for merchandise returned $50. 20 Made sales on account to members $910. The cost of merchandise sold was $550. 21 Paid Woods Sportswear in full. 30 Received payments on account from members $1,400. Prepare a tabular summary that includes the following accounts: Cash, Accounts Receivable, Inventory, Accounts Payable, Common Stock, Sales Revenue, Sales Returns and Allowances, and Cost of Goods Sold.…arrow_forwardOn April 1, the ledger of Tamara shop showed Cash $3,000, Inventory $4,000, and Owner’s Capital $7,000. These transactions occurred during April 2020. Apr. 5 Purchased bags on account from Tiger Co. $1,200, FOB shipping point, terms 2/10, n/60. 7 Paid freight on Tiger Co. purchases $50. 9 Received credit from Tiger Co. for merchandise returned $100. 10 Sold merchandise on account to customers $600, terms n/30. 12 Purchased golf shoes, sweaters, and other accessories on account from Classic Sportswear $450, terms 1/10, n/30. 14 Paid Tiger Co. in full. 17 Received credit from Classic Sportswear for merchandise returned $50. 20 Made sales on account to customers $600, terms n/30. 21 Paid Classic Sportswear in full. 27 Granted credit to customers for clothing that had flaws $35. 30 Received payments on account from customers $600. The chart of accounts for the Tamara shop includes Cash, Accounts Receivable, Inventory, Accounts Payable, Owner’s Capital, Sales Revenue, Sales Returns and…arrow_forward
- Schrand Corporation purchase materials from a that offers credit terms of /supplier, n It purchased $12,500 of merchandized inventory from the supplier on Jan. 20, 2016.a. Assume Schrand paid the invoice on February 15,2016. Prepare a journal entry to record the purchase of this inventory and the cash payment to the supplier using the net of discount method.b. Set up the necessary T accounts and post the journal entries from question a to the accounts.c. Compute the cost of a lost discount as an annual percentage rate.arrow_forwardAjman-Retail-Mart-Mart LLC completed the following merchandising transactions in the month of March 2024. At the beginning of March, the ledger of Ajman-Retail-Mart showed Cash of AED12,000 and Owner's Capital of AED450,000. The following are the transactions in March. Date Transactions March 2 Purchased merchandise on account from Wahid Supply AED6,200, terms 1/10, n/30. 4 Sold merchandise on account AED5,500, FOB destination, terms 1/10, n/30. The cost of the merchandise sold was AED3,400. 5 Paid AED240 freight on April 4 sale. 6 11 13 14 16 18 Received credit from Wahid Supply for merchandise returned AED500. Paid Wahid Supply in full, less discount. Received collections in full, less discounts, from customers billed on April 4. Purchased merchandise for cash AED3,800. Received refund from supplier for returned goods on cash purchase of April 14, AED500. Purchased merchandise from Bayan LLC AED4,500, FOB shipping point, terms 2/10, n/30. 20 23 26 27 29 222222 30 Paid freight on…arrow_forwardTransaction Analysis Pollys Cards $ Gifts Shop had the following transactions during the year: Pollys purchased inventory on account from a supplier for $8,000. Assume that Pollys uses a periodic inventory system. On May 1, land was purchased for $44,500. A 20% down payment was made, and an 18-month, 8% note was signed for the remainder. Pollys returned $450 worth of inventory purchased in (a), which was found broken when the inventory was received. Pollys paid the balance due on the purchase of inventory. On June 1, Polly signed a one-year, $15,000 note to First State Bank and received $13,800. Pollys sold 200 gift certificates for $25 each for cash. Sales of gift certificates are recorded as a liability. At year-end, 35% of the gift certificates had been redeemed. Sales for the year were $120,000, of which 90% were for cash. State sales tax of 6% applied to all sales must be remitted to the state by January 31. Required Record all necessary journal entries relating to these transactions. Assume that Pollys accounting year ends on December 31. Prepare any necessary adjusting journal entries. What is the total of the current liabilities at the end of the year?arrow_forward
- Record journal entries for the following purchase transactions of Flower Company. A. On October 13, Flower Company purchased 85 bushels of flowers with cash for $1,300. B. On October 20, Flower Company purchased 240 bushels of flowers for $20 per bushel on credit. Terms of the purchase were 5/10, n/30, invoice dated October 20. C. On October 30, Flower Company paid its account in full for the October 20 purchase.arrow_forwardJames Company began the month of October with inventory of $15,000. The following inventory transactionsoccurred during the month:a. The company purchased merchandise on account for $22,000 on October 12, 2018. Terms of the purchasewere 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shippingpoint and freight charges of $500 were paid in cash.b. On October 31, James paid for the merchandise purchased on October 12.c. During October merchandise costing $18,000 was sold on account for $28,000.d. It was determined that inventory on hand at the end of October cost $19,060.Required:1. Assuming that the James Company uses a periodic inventory system, prepare journal entries for the abovetransactions including the adjusting entry at the end of October to record cost of goods sold.2. Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the abovetransactions.arrow_forwardCurrent Attempt in Progress Assume that on September 1, Office Depot had an inventory that included a variety of calculators. The company uses a perpetual inventory system. During September, these transactions occurred. Sept. Purchased calculators from Dragoo Co. at a total cost of $1,580, on account, terms n/30 FOB shipping point. 6. Paid freight of $49 on calculators purchased from Dragoo Co. Returned calculators to Dragoo Co. for $62 credit because they did not meet specifications. Sold calculators costing $480 for $680 to Fryer Book Store, on account, terms n/30. Granted credit of $46 to Fryer Book Store for the return of one calculator that was not ordered. The calculator cost $36. 10 12 14 20 Sold calculators costing $560 for $800 to Heasley Card Shop, on account, terms n/30. Journalize the September transactions for Office Depot. (Credit account titles are automatically Indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the…arrow_forward
- JYP began operation in 2016. For the year ended, the company has the ff details: Merchandise Purchases USD 6, 000, 000 Merchandise Inventory, Dec. 31 USD 2, 400, 000 Collection from customers USD 4, 365, 000 Note that all merch was marked to sell at 35% on selling price. All sales are made on a credit basis and all receivables are collectibl Determine and compute the balance of accounts receivable on year end.arrow_forwardComplete the necessary journal entries for the company below. a. ABC Co purchased $1,000 of inventory on account. Credit Terms 2/10, n/30. X/X b. ABC Co paid for shipping of $50 for the purchase. (FOB Shipping Point) X/X c. ABC Co. returned $400 of the purchased. X/X d. ABC Co. paid the bill within the discount period. X/Xarrow_forwardRestin Co. uses the gross method to record sales made on credit. On June 1, 2017, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2017, Restin received full payment for the June 1 sale. Prepare the required journal entries for Restin Co.arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College