Accounting Solution 5.1 (Accounting in Merchandising Companies)
Take a look at the table below:
| Event No |
Account titles |
Debit |
Credit |
| 1 |
Cash Inventory Contributed Capital |
6,000 |
10,000 |
| 2 |
Inventory Accounts Payable |
3,000 |
3,000 |
| 3 |
Inventory (Transportation-in) Cash |
250 |
250 |
| 4 |
Accounts Payable Inventory |
500 |
500 |
| 5 |
Accounts Payable Inventory |
75* |
75* |
| 6a |
Accounts Receivable Sales Revenue |
5,000 |
5,000 |
| 6b |
Cost of Goods Sold Inventory |
2,000 |
2,000 |
| 7 |
Transportation-out Cash |
670 |
670 |
| 8 |
Sales Revenue Accounts Receivable |
300 |
300 |
| 9a |
Sales Revenue Accounts Receivable |
500 |
500 |
| 9b |
Inventory Cost of Goods Sold |
200 |
200 |
| 10 |
Cash Accounts Receivable |
4,200 |
4,200 |
| 11 |
Accounts Payable Cash |
2,425 |
2,425 |
| Closing |
Sales Revenue Cost of Goods Sold Transportation-out Retained Earnings |
4,200 |
1,800 |
* Cash discount: ($3,000 - $500 of returned goods) x 3% = $75
In Event No.3 note that the transportation-in expense is recorded as an increase in the Inventory account. The same occurred when the company purchased additional inventory. This happens because the company used the perpetual inventory system. Recall that the perpetual system leads the increases and decreases in inventory to be recorded directly to the Inventory account.
T-accounts for the transactions are shown below:
| Assets |
= |
Liabilities |
+ |
Equity |
|||
| Cash |
|
Accounts Payable |
|
Contributed Capital |
|||
(1) 6,000
(10) 4,200 |
(3) 250 (7) 670 (11) 2,425 |
(4) 500 (5) 75 (11) 2,425 |
(2) 3,000 | (1) 10,000 | |||
| Bal. 10,000 | |||||||
Bal. 6,855 |
Bal. 0 |
Retained Earnings |
|||||
| cl. 1,730 | |||||||
| Accounts Receivable |
Bal. 1,730 | ||||||
(6a) 5,000 |
(8) 300 (9a) 500 (10) 4,200 |
||||||
| Sales Revenue |
|||||||
(8) 300 (9a) 500 cl. 4,200 |
(6a) 5,000 | ||||||
Bal. 0 |
|||||||
| Inventory |
Bal. 0 |
||||||
(1) 4,000 (2) 3,000 (3) 250 (9b) 200 |
(4) 500 (5) 75(6b) 2,000 | ||||||
| Cost of Goods Sold |
|||||||
(6b) 2,000 |
(9b) 200 cl. 1,800 |
||||||
Bal. 4,875 |
Bal. 0 |
||||||
| Transportation-out |
|||||||
(7) 670 |
cl. 670 | ||||||
Bal. 0 |
|||||||
| Totals |
|||||||
| Assets |
= |
Liabilities |
+ |
Equity |
|||
Location