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
June 4 sold $650 of merchandise on credit (that had cost $400) to N.M.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 4 | Accounts Receivables (N.M) | 650 | ||
Sales | 650 | |||
(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($) |
Jun 4 | Cost of Goods Sold | 400 | ||
Merchandise Inventory | 400 | |||
(Being cost of goods sold is recorded ) |
Table (2)
- Since the cost of merchandise sold is $400 and company is using perpetual inventory system, it is debited.
- Merchandise inventory account is credited as it is an asset account and it has decreased.
June 5 sold $6,900 of merchandise (that had cost $4,200) to customers who used their Z cards.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 5 | Cash | 6,693 | ||
Credit Card Expense | 207 | |||
Sales | 6,900 | |||
(Being sales of $6,900 is recorded payment for which is made with MasterCard credit cards ) |
Table (3)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales are revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 5 | Cost of Goods Sold | 4,200 | ||
Merchandise Inventory | 4,200 | |||
(Being cost of goods sold is recorded ) |
Table (4)
- Since the cost of merchandise sold is $4,200 and company is using perpetual inventory system, it is debited.
- Merchandise inventory account is credited as it is an asset account and it has decreased.
June 6 sold $5,850 of merchandise (that had cost $3,800) to customers who used their A cards.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 6 | Cash | 5,733 | ||
Credit Card Expense | 117 | |||
Sales | 5,850 | |||
(Being sales of $5,850 is recorded payment for which is made with MasterCard credit cards ) |
Table (5)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 6 | Cost of Goods Sold | 3,800 | ||
Merchandise Inventory | 3,800 | |||
(Being cost of goods sold is recorded ) |
Table (6)
- Since, the cost of merchandise sold is $3,800 and company is using perpetual inventory system, it is debited.
- Since, sales of merchandise have been made and asset has reduced, it is credited.
June 8 sold $4,350 of merchandise (that had cost $2,900) to customers who used their A cards.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 8 | Cash | 4,263 | ||
Credit Card Expense | 87 | |||
Sales | 4,350 | |||
(Being sales of $4,350 is recorded payment for which is made with MasterCard credit cards ) |
Table (7)
- Since, payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
- Since, payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
- Since, sales of merchandise have been made and sales is revenue account, it is credited when it is increased.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 8 | Cost of Goods Sold | 2,900 | ||
Merchandise Inventory | 2,900 | |||
(Being cost of goods sold is recorded ) |
Table (8)
- Since, the cost of merchandise sold is $2,900 and company is using perpetual inventory system, it is debited.
- Since, sales of merchandise have been made and asset has reduced, it is credited.
June 13 wrote off the account of A.M against the allowance for doubtful accounts. The $429 balance in A.M’s account stemmed from a credit sale in October of last year.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 13 | Allowance for Doubtful Account | 429 | ||
Accounts Receivable | 429 | |||
(Being write off of uncollectible accounts receivable is recorded) |
Table (9)
- Since, in allowance method of accounting for accounts receivable the amount for
bad debt expense is deducted from allowance for doubtful account which is a contra asset account, it is debited when it s decreased. - Since, in allowance method of accounting for accounts receivable the deduction is made against the account receivable account which is an asset account, it is credited when it s decreased.
June 18 received N.M’s check in full payment for the purchase of June 4.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Jun 18 | Cash | 650 | ||
Account Receivable (N.M) | 650 | |||
(Being payment from an account receivable is recorded) |
Table (10)
- 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.
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Chapter 7 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
- PURCHASES TRANSACTIONS Ann Benton, owner of Bentons Galleria, made the following purchases of merchandise on account during the month of October: Oct. 2Purchase Invoice No. 321, 1,950, from Boggs Distributors. 7Purchase Invoice No. 152, 2,915, from Wolfs Wholesaler. 10Purchase Invoice No. 634, 3,565, from Komuro Co. 16Purchase Invoice No. 349, 2,845, from Fritz McCord, Inc. 24Purchase Invoice No. 587, 3,370, from Boggs Distributors. 26Purchase Invoice No. 764, 2,240, from Sanderson Company. 31Purchase Invoice No. 672, 1,630, from Wolfs Wholesaler. Required 1. Record the transactions starting with page 16 of a general journal. 2. Post from the general journal to the general ledger accounts and to the accounts payable ledger accounts. Use general ledger account numbers as shown in the chapter.arrow_forwardPURCHASES TRANSACTIONS J. B. Speck, owner of Specks Galleria, made the following purchases of merchandise on account during the month of September: Sept. 3Purchase Invoice No. 415, 2,650, from Smith Distributors. 8Purchase Invoice No. 132, 3,830, from Michaels Wholesaler. 11Purchase Invoice No. 614, 3,140, from J. B. Sanders Co. 18Purchase Invoice No. 329, 2,250, from Bateman Jones, Inc. Sept. 23Purchase Invoice No. 767, 4,160, from Smith Distributors. 27Purchase Invoice No. 744, 1,980, from Anderson Company. 30Purchase Invoice No. 652, 2,780, from Michaels Wholesaler. Required 1. Record the transactions starting with page 16 of a general journal. 2. Post from the general journal to the general ledger accounts and to the accounts payable ledger accounts. Use general ledger account numbers as shown in the chapter.arrow_forwardC. R. McIntyre Company sells candy wholesale, primarily to vending machine operators. Terms of sales on account are 2/10, n/30, FOB shipping point. The following transactions involving cash receipts and sales of merchandise took place in May of this year: Required 1. Journalize the transactions for May in the cash receipts journal and the sales journal. Assume the periodic inventory method is used. 2. Total and rule the journals. 3. Prove the equality of the debit and credit totals.arrow_forward
- Toby Company had the following sales transactions for March: Mar. 6Sold merchandise on account to Osbourne, Inc., invoice no. 1128, 563.17. 14Sold merchandise on account to Ortiz Company, invoice no. 1129, 823.50. 20Sold merchandise on account to Bailey Corporation, invoice no. 1130, 2,350.98. 24Sold merchandise on account to Shannon Corporation, invoice no. 1131, 1,547.07. Assume that Toby Company had beginning balances on March 1 of 3,569.80 (Sales 411) and 2,450.39 (Accounts Receivable 113). Record the sales of merchandise on account in the sales journal (page 24) and then post to the general ledger.arrow_forwardThe following transactions were completed by Nelsons Hardware, a retailer, during September. Terms on sales on account are 1/10, n/30, FOB shipping point. Sept. 4Received cash from M. Alex in payment of August 25 invoice of 275, less cash discount. 7Issued Ck. No. 8175, 915.75, to Top Tools, Inc., for invoice. no. 2256, recorded previously for 925, less cash discount of 9.25. 10Sold merchandise in the amount of 175 on a credit card. Sales tax on this sale is 8%. The credit card fee the bank deducted for this transaction is 5. 11Issued Ck. No. 8176, 653.40, to Snap Tools, Inc. for invoice no. 726, recorded previously on account for 660. A trade discount of 15% was applied at the time of purchase, and Snap Tools, Inc.s credit terms are 1/10, n/45. 15Received 95 cash in payment of August 20 invoice from N. Johnson. No cash discount applied. 19Received 1,165 cash in payment of a 1,100 note receivable and interest of 65. 22Voided Ck. No. 8177 due to error. 26Received and paid telephone bill, 62; Ck. No. 8178, payable to Southern Telephone Company. 30Paid wages recorded previously for the month, 3,266, Ck. No. 8179. Required 1. Journalize the transactions for September in the cash receipts journal, the general journal (for the transaction on Sept. 10th), or the cash payments journal as appropriate. Assume the periodic inventory method is used. 2. If you are using Working Papers, total and rule the journals. Prove the equality of debit and credit totals.arrow_forwardAnalyzing the Accounts Casey Company uses a perpetual inventory system and engaged in the following transactions: a. Made credit sales of $825,000. The cost of the merchandise sold was $560,000. b. Collected accounts receivable in the amount of $752,600. c. Purchased goods on credit in the amount of $574,300. d. Paid accounts payable in the amount of $536,200. Required: Prepare the journal entries necessary to record the transactions. Indicate whether each transaction increased cash, decreased cash, or had no effect on cash.arrow_forward
- Journalize the following transactions in general journal form. a. Bought merchandise on account from Brewer, Inc., invoice no. B2997, 914; terms net 30 days; FOB destination. b. Received credit memo no. 96 from Brewer, Inc., for merchandise returned, 238.arrow_forwardThe following transactions were completed by Nelsons Boutique, a retailer, during July. Terms of sales on account are 2/10, n/30, FOB shipping point. July 3Received cash from J. Smith in payment of June 29 invoice of 350, less cash discount. 6Issued Ck. No. 1718, 742.50, to Designer, Inc., for invoice. no. 2256, recorded previously for 750, less cash discount of 7.50. July 9Sold merchandise in the amount of 250 on a credit card. Sales tax on this sale is 6%. The credit card fee the bank deducted for this transaction is 5. 10Issued Ck. No. 1719, 764.40, to Smart Style, Inc., for invoice no. 1825, recorded previously on account for 780. A trade discount of 25% was applied at the time of purchase, and Smart Style, Inc.s credit terms are 2/10, n/30. 12Received 180 cash in payment of June 20 invoice from R. Matthews. No cash discount applied. 18Received 1,575 cash in payment of a 1,500 note receivable and interest of 75. 21Voided Ck. No. 1720 due to error. 25Received and paid utility bill, 152; Ck. No. 1721, payable to City Utilities Company. 31Paid wages recorded previously for the month, 2,586, Ck. No. 1722. Required 1. Journalize the transactions for July in the cash receipts journal, the general journal (for the transaction on July 9th), or the cash payments journal as appropriate. Assume the periodic inventory method is used. 2. If you are using Working Papers, total and rule the journals. Prove the equality of debit and credit totals.arrow_forwardJOURNAL ENTRIES UNDER THE PERPETUAL INVENTORY SYSTEM Sunita Computer Supplies entered into the following transactions. Prepare journal entries under the perpetual inventory system. May 1 Purchased merchandise on account from Anju Enterprises, 200,000. 8 Purchased merchandise for cash, 100,000. 15 Sold merchandise on account to Salils Pharmacy for 8,000. The merchandise cost 5,000.arrow_forward
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