Journalize Entries For The Following Transactions Purchased
Journalize Entries For The Following Transactionsa Purchased 2500
Journalize entries for the following transactions:
a. Purchased $25,000 of merchandise from Presidio Co. on account, with terms 2/10, n/30.
b. Paid the amount owed on the invoice within the discount period.
c. Discovered that $5,000 of the merchandise was defective and returned items, resulting in credits.
d. Purchased $4,000 of merchandise from Presidio Co. on account, terms n/30.
e. Received a check for the balance owed from the return of bad merchandise.
Paper For Above instruction
The series of transactions detailed involve typical purchasing and payment procedures within a business setting, especially concerning accounts payable and inventory management. Proper recording of these transactions ensures accurate financial statements and adherence to accounting principles.
The first transaction involves the purchase of merchandise totaling $25,000 from Presidio Co., with payment terms of 2/10, n/30. This indicates that if the company pays within ten days, they are eligible for a 2% discount; otherwise, the net amount is due within 30 days. The journal entry to record this purchase would recognize the inventory at the gross amount and set up an accounts payable liability. Assuming the company takes advantage of the discount if paid promptly, the initial transaction is recorded as:
Debit Inventory $25,000
Credit Accounts Payable $25,000
In the second transaction, the company pays the invoice within the discount period, therefore, they are eligible for the 2% discount. Calculating the discount: 2% of $25,000 is $500. The payment amount reduces to $24,500 ($25,000 - $500). The journal entry upon payment is:
Debit Accounts Payable $25,000
Credit Cash $24,500
Credit Inventory $500
This entry recognizes the payment, reduces accounts payable, and reflects inventory reduction due to the discount.
The third transaction involves discovering that $5,000 worth of goods was defective and returning those items. The returns decrease inventory and create a credit on accounts payable. Assuming the original invoice included the full amount, the journal entry to record the return would involve:
Debit Accounts Payable $5,000
Credit Inventory $5,000
This reduces the amount owed to the supplier and diminishes inventory, maintaining accurate records of the actual goods retained.
The fourth transaction records the purchase of an additional $4,000 of merchandise from Presidio Co., this time with net 30 payment terms (n/30). Since no discount is available, the accounting entry reflects an increase in inventory and a liability:
Debit Inventory $4,000
Credit Accounts Payable $4,000
Finally, upon receiving a check for the balance owed from the return of bad merchandise, the company decreases its liabilities accordingly. The payment would be:
Debit Accounts Payable $5,000
Credit Cash $5,000
This final entry clears the reduced payable balance resulting from the defective merchandise return.
Throughout this process, adhering to the matching principle and ensuring accurate recording of inventory, payables, and cash transactions is essential. It helps maintain reliable financial statements and provides clarity regarding the company's purchasing activities, discounts, returns, and payments.
Proper documentation and timely entries enable managers and external auditors to assess the company's operational effectiveness and financial health effectively. These transactions exhibit fundamental accounting practices related to purchase discounts, inventory management, and creditor payments that are critical for sound financial management.
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