Explanation General Journal: General journal is a type of journal which records the infrequent transactions of the business in chronological order. It also records those transactions which are not recorded in the special journal. Merchandise purchased on credit including freight charges: Date Account Title and Explanation Post Ref. Debit ($) Credit ($) April 1, 2019 Merchandise inventory 3,020 Accounts payable/Company OF 3,020 (to record the merchandise purchased on credit with 1/10, n/30 terms) Table (1) • The merchandise inventory account is debited. This is because the merchandise inventory can be identified as asset account and its balance increases. The freight charges are included within merchandise inventory account. No separate account is prepared for the freight charges under perpetual inventory system. • The accounts payable account is credited. This is because the accounts payable is a liability account and its balance increases. Recording the payment made with purchase discount: Date Account Title and Explanation Post Ref. Debit ($) Credit ($) April 9, 2019 Accounts payable/Company OF 3,020 Merchandise inventory 30 Cash 2,990 (to record the payment made and taking purchase discount ) Table (2) • The accounts payable is debited. This is because accounts payable is liability and its balance decreases. • The merchandise inventory account is credited. This is because purchase discount is received of the payment made and there is reduction is merchandise purchases cost. • The cash account is an asset account and its balance decreases. Therefore, it is credited. Working Note: The purchase discount under the perpetual inventory system is represented by the merchandise inventory account. The purchased discount is calculated on the merchandise purchases cost excluding purchase returns and the freight charges. The purchase discount is given as one percent of the merchandise purchase. Calculation of purchase discount: Purchases discount = ( ( Purchases amount − Purchases reutrns − Freight charges ) × ( Percentage of Purchases discount 100 ) ) = $ 3 , 000 × 1 100 = $ 30 The amount of purchase discount would be $30. Recording the merchandise purchase on credit including prepaid freight charges: Date Account Title and Explanation Post Ref. Debit ($) Credit ($) April 15, 2019 Merchandise inventory 1,325 Accounts payable/Company K 1,325 (to record the merchandise purchased on credit with 1/10, n/30 terms) Table (3) • The merchandise inventory can be identified as asset account and its balance increases

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ISBN: 9781260255157

Author: Haddock

Publisher: MCG CUSTOM

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