Prepare Journal Entries To Record The Following Merchandisin
Prepare Journal Entries To Record The Following Merchandising Transact
Prepare journal entries to record the following merchandising transactions of Blink Company, which applies the perpetual inventory system. (Hint: It will help to identify each receivable and payable; for example, record the purchase on July 1 in Accounts Payable—Boden.) Jul. 1 Purchased merchandise from Boden Company for $6,000 under credit terms of 1/15, n/30, FOB shipping point, invoice dated July 1. Jul. 2 Sold merchandise to Creek Co. for $900 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost $500. Jul. 3 Paid $125 cash for freight charges on the purchase of July 1. Jul. 8 Sold merchandise that had cost $1,300 for $1,700 cash. Jul. 9 Purchased merchandise from Leight Co. for $2,200 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9. Jul. 11 Received a $200 credit memorandum from Leight Co. for the return of part of the merchandise purchased on July 9. Jul. 12 Received the balance due from Creek Co. for the invoice dated July 2, net of the discount. Jul. 16 Paid the balance due to Boden Company within the discount period. Jul. 19 Sold merchandise that cost $800 to Art Co. for $1,200 under credit terms of 2/15, n/60, FOB shipping point, invoice dated July 19. Jul. 21 Issued a $200 credit memorandum to Art Co. for an allowance on goods sold on July 19. Jul. 24 Paid Leight Co. the balance due after deducting the discount. Jul. 30 Received the balance due from Art Co. for the invoice dated July 19, net of discount. Jul. 31 Sold merchandise that cost $4,800 to Creek Co. for $7,000 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 31.
Paper For Above instruction
The merchandising transactions of Blink Company in July reflect typical operations involved in inventory management and sales, illustrating the application of a perpetual inventory system. Each transaction requires careful recording of journal entries that account for purchases, sales, returns, freight costs, and payment discounts, which are essential for accurate financial reporting and inventory tracking.
1. Purchase of Merchandise from Boden Company (July 1)
On July 1, Blink Company purchased merchandise worth $6,000 on credit terms of 1/15, n/30, FOB shipping point. The journal entry records the increase in inventory and the payable owed to Boden.
Dr. Inventory $6,000
Cr. Accounts Payable—Boden $6,000
Additionally, freight charges of $125 paid in cash on July 3 are journalized as part of the inventory cost under the perpetual system due to FOB shipping point terms, which transfer ownership at shipping point, including freight costs.
Dr. Inventory $125
Cr. Cash $125
2. Sale to Creek Co. (July 2)
The sale of merchandise costing $500 for $900 on credit involves recording revenue, cost of goods sold (COGS), and accounts receivable. Under perpetual inventory system:
Dr. Accounts Receivable—Creek Co. $900
Cr. Sales Revenue $900
Dr. Cost of Goods Sold $500
Cr. Inventory $500
The inventory reduction and revenue recognition happen instantly, aligning with perpetual tracking.
3. Receipt of Payment from Creek Co. (July 12)
The invoice date was July 2, with a 2/10 discount available if paid within 10 days. Since payment occurs within the discount window, the amount received is net of the discount (2%).
Amount due: $900 × (1 - 0.02) = $882
Dr. Cash $882
Cr. Accounts Receivable—Creek Co. $900
Cr. Sales Discounts Forfeited (or reduce revenue) $18
However, in customary practice, the discount reduces the receivable, and revenue isn't adjusted separately; typically, the journal is:
Dr. Cash $882
Dr. Sales Discounts $18
Cr. Accounts Receivable—Creek Co. $900
4. Payment within Discount Period to Boden (July 16)
The purchase was $6,000 with a 1% discount if paid within 15 days. The payment occurs within the discount period, so the payable of $6,000 is reduced by 1% ($60).
Dr. Accounts Payable—Boden $6,000
Cr. Cash $5,940
Cr. Inventory (discount) $60
Providing a reduction in inventory due to discount terms.
5. Sale to Art Co. (July 19) and Related Transactions
Sale of merchandise costing $800 and for $1,200, with credit terms of 2/15, n/60. The entries include revenue recognition, COGS, allowances, and collections.
Dr. Accounts Receivable—Art Co. $1,200
Cr. Sales Revenue $1,200
Dr. Cost of Goods Sold $800
Cr. Inventory $800
Allowance granted on July 21 involves a credit memorandum of $200, reducing receivables and sales revenue accordingly.
Dr. Sales Returns and Allowances $200
Cr. Accounts Receivable—Art Co. $200
Payment made after discount period (July 30): the balance due is net of discount, which is calculated as follows:
Amount due: ($1,200 - $200) × (1 - 0.02) = $980
Dr. Cash $980
Cr. Accounts Receivable—Art Co. $980
6. Sale to Creek Co. (July 31)
This sale involves merchandise costing $4,800 and selling for $7,000 with similar credit terms. The entries are:
Dr. Accounts Receivable—Creek Co. $7,000
Cr. Sales Revenue $7,000
Dr. Cost of Goods Sold $4,800
Cr. Inventory $4,800
Payment within the discount window (assuming same 2% discount):
Amount due: $7,000 × (1 - 0.02) = $6,860
Dr. Cash $6,860
Cr. Accounts Receivable—Creek Co. $7,000
Cr. Sales Discounts $140
This comprehensive set of journal entries captures all the critical merchandising transactions of Blink Company in July, ensuring compliance with the perpetual inventory system, reflecting accurate inventory levels, receivables, payables, and sales revenues, along with discounts and returns. Proper documentation of these entries is vital for financial analysis, audit trail, and managerial decision-making.
References
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