Concept explainers
Sales on account and credit card sales C1
Archer Co. completed the following transactions and uses a perpetual inventory system.
Aug.4 Sold $3,700 of merchandise on credit (that had cost $2,000) to McKenzie Carpenter, terms n/10.
10 Sold $5,200 of merchandise (that had cost $2,800) to customers who used their Commerce
Bank credit cards. Commerce charges a 3% fee.
11Sold $1,250 of merchandise (that had cost $900) to customers who used their Goldman cards.
Goldman charges a 2% fee.
14 Received Carpenter's check in full payment for the August 4 purchase.
15 Sold $3,250 of merchandise (that had cost $1,758) to customers who used their Goldman cards.
Goldman charges a 2% fee.
22 Wrote off the account of Craw Co. against the Allowance for Doubtful Accounts. the $498 balance in Craw Co.'s account was from a credit sale last year.
Check Aug. 14, Dr. Cash, $3,700
Required
Prepare
Journal Entry:
It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.
Rules of Journal Entry:
- Assets: Increase in asset should be debit and decrease should be credit.
- Liabilities: Increase in liabilities should be credit and decrease should be debit.
- Equity: Increase in Equity should be credit and decrease should be debit.
- Expense: Increase in expense should be debit and decrease should be credit.
- Revenue: Increase in revenue should be credit and decrease should be debit.
Credit Card:
It refers to the card made of plastic and issued by a bank. It provides an individual to buy goods and services on credit when they have shortage of cash.
Perpetual Inventory System:
It refers to the system to record the transaction related to inventories at the time of their occurrence. Each sale and purchase is recorded at the time they occurred.
To prepare: Journal entries for the given credit card sales transactions.
Explanation of Solution
Aug 4 sold $3,700 of merchandise on credit (that had cost $2,000) to M.C.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 4 | Accounts Receivables (M.C) | 3,700 | ||
Sales | 3,700 | |||
(Being sales of $650 on credit is recorded ) |
Table (1)
- Since, the sales of merchandise on credit will increase the value of accounts receivables and accounts receivable is an asset account, it is debited when it is increased.
- Since, the sales of merchandise would increase the value of sales in the company and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 4 | Cost of Goods Sold | 2,000 | ||
Merchandise Inventory | 2,000 | |||
(Being cost of goods sold is recorded ) |
Table (2)
- Since, the cost of merchandise sold is $2000 and company is using perpetual inventory system, it is debited.
- Merchandise inventory account is debited as it is an asset account and it has decreased.
Aug 10 sold $5,200 of merchandise (that had cost $2,800) to customers who used their commerce bank credit card.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 10 | Cash | 5,044 | ||
Credit Card Expense | 156 | |||
Sales | 5,200 | |||
(Being sales of $5,200 is recorded payment for which is made with MasterCard credit cards ) |
Table (3)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 10 | Cost of Goods Sold | 2,800 | ||
Merchandise Inventory | 2,800 | |||
(Being cost of goods sold is recorded ) |
Table (4)
- Since, the cost of merchandise sold is $2,800 and company is using perpetual inventory system, it is debited.
- Merchandise inventory account is debited as it is an asset account and it has decreased.
Aug 11 sold $1,250 of merchandise (that had cost $900) to customers who used their G.M cards.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 11 | Cash | 1,225 | ||
Credit Card Expense | 25 | |||
Sales | 1,250 | |||
(Being sales of $1,250 is recorded payment for which is made with MasterCard credit cards ) |
Table (5)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 11 | Cost of Goods Sold | 900 | ||
Merchandise Inventory | 900 | |||
(Being cost of goods sold is recorded ) |
Table (6)
- Since, the cost of merchandise sold is $900 and company is using perpetual inventory system, it is debited.
- Merchandise inventory account is debited as it is an asset account and it has decreased.
Aug 14 received M.C’s check in full payment for payment for the purchase of Aug 4.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 14 | Cash | 3,700 | ||
Account Receivable (M.C) | 3,700 | |||
(Being payment from an account receivable is recorded) |
Table (7)
- Since, payment from an accounts receivable will increase the cash and cash is an asset account, it is debited when it is increased.
- Since, payment from an accounts receivable will decrease the accounts receivable and accounts receivable is an asset account, it is credited when it is decreased.
Aug 15 sold $3,250 of merchandise (that had cost $1,758) to customer who used their G.M cards.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 15 | Cash | 3,185 | ||
Credit Card Expense | 65 | |||
Sales | 3,250 | |||
(Being sales of $3,250 is recorded payment for which is made with MasterCard credit cards ) |
Table (8)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 15 | Cost of Goods Sold | 1,758 | ||
Merchandise Inventory | 1,758 | |||
(Being cost of goods sold is recorded ) |
Table (9)
- Since, the cost of merchandise sold is $2000 and company is using perpetual inventory system, it is debited.
- Merchandise inventory account is debited as it is an asset account and it has decreased.
Aug 22 wrote off the account of C.C against the allowance for doubtful accounts. The $498 balance in C.C’s account stemmed from a credit sale in November of last year.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Aug 22 | Allowance for Doubtful Account | 498 | ||
Accounts Receivable | 498 | |||
(Being write off of uncollectible accounts receivable is recorded) |
Table (10)
- Since, in allowance method of accounting for accounts receivable the amount for bad debt expense is deducted from allowance for doubtful account which is a contra asset account, it is debited when it s decreased.
- Since, in allowance method of accounting for accounts receivable the deduction is made against the account receivable account which is an asset account, it is credited when it s decreased.
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Chapter 7 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
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