Prepare Journal Entries For The Transactions That Occurred

Prepare journal entries for the transactions that occurred in June, July, and August

Prepare journal entries for the transactions that occurred in June, July, and August. The company uses a perpetual inventory system. Round to nearest dollar.

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Paper For Above instruction

In this paper, I will prepare journal entries for the specified transactions in the months of June, July, and August for a company that employs a perpetual inventory system. The transactions involve receivables, notes receivable, equipment, bank transactions, and interest calculations. Accurate recording of these entries is essential for proper financial statement presentation and compliance with accounting standards.

June Transactions

The first transaction recorded on June 1 involves a sale to Curtis on account, with the receivable valued at $1,150. Simultaneously, equipment (a mixer) worth an unspecified amount (assuming typical value or as per transaction) is acquired. The relevant journal entries are as follows:

  • Debit Accounts Receivable (Curtis) for $1,150
  • Credit Sales Revenue for the same amount (assuming sale occurred; if not explicitly stated, record receivable and note sale details elsewhere)
  • Debit Equipment (Mixer) for the equipment cost (assuming based on context)
  • Credit Cash or Accounts Payable accordingly

Note: As the transaction details are limited, the primary focus is on accounts receivable and equipment, assuming sale and purchase occurred on June 1.

The second transaction on June 1 involves a notes receivable of $1,158. Interest must be calculated at an annual rate of 8.35%. The interest for the month is calculated as:

Interest = Principal x Rate x Time (in months)

Interest = $1,158 x 8.35% x 1/12 ≈ $8.05

Journal entry to record note issuance:

  • Debit Notes Receivable for $1,158
  • Credit Accounts Receivable (Curtis) for $1,150
  • Credit Interest Revenue for approximately $8

The transaction on June 30 involves receipt of interest on the note, which is typically accrued monthly. The journal entry to record interest income is:

  • Debit Interest Receivable for $8
  • Credit Interest Revenue for $8

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July Transactions

The note is dishonored in July, and no further interest is charged. The journal entry to record the dishonor is:

  • Debit Accounts Receivable (Curtis) for $1,158
  • Credit Notes Receivable for $1,158

This reflects the transfer of the note balance back to accounts receivable as the note is no longer valid.

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August Transactions

In August, the collection is received from Curtis, and the account receivable is settled. The journal entries are as follows:

  • Debit Bank for $1,158
  • Credit Accounts Receivable (Curtis) for $1,158

This completes the collection and settlement of the receivable.

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Additional Notes on Transaction Handling

Proper application of the company's perpetual inventory system necessitates recording all inventory-related transactions precisely at the time of occurrence, including sales, purchases, returns, and inventory adjustments. The above entries focus primarily on receivables and notes receivable, which are central to the transactions described. In actual practice, entries would also include inventory and cost of goods sold accounts for sales transactions.

Conclusion

Accurately preparing journal entries for these transactions ensures the integrity of the company's financial records. These entries facilitate correct reporting of receivables, interest income, and cash collections, which are vital for subsequent financial analysis and decision-making.

References

  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Accounting Principles (13th ed.). Wiley.
  • Gibson, C. H. (2019). Financial Reporting & Analysis. Cengage Learning.
  • Horngren, C. T., Harrison, W. T., & Oliver, M. (2019). Financial & Managerial Accounting. Pearson.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • Libby, R., Libby, P., & Short, D. G. (2019). Financial Accounting. McGraw-Hill Education.
  • SEC. (n.d.). Financial Reporting & Analysis. U.S. Securities and Exchange Commission.
  • Financial Accounting Standards Board (FASB). (2020). Accounting Standards Codification.
  • American Institute of CPAs. (2021). Code of Professional Conduct.
  • Investopedia. (2023). Journal Entries - Definition, Types, and Examples.
  • AccountingCoach. (2023). Interest Calculation and Journal Entries.

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