![]() Characteristics of the Perpetual and Periodic Inventory SystemsĪ perpetual inventory system automatically updates and records the inventory account every time a sale, or purchase of inventory, occurs. Let’s look at the characteristics of these two systems. They can use a perpetual or periodic inventory system. The followingĪllowances increases (credit) by $120 (4 × $30).There are two ways in which a company may account for their inventory. Manufacturer issues an allowance of $30 per printer. Purchase are slightly damaged but decides to keep them because the On July 10, CBS discovers that 4 more printers from the July 1 Was on credit and the return occurred before payment. ![]() Increases (credit) by $8,000 ($100 × 80).Īccounts Payable decreases (debit) and Purchase Returns andĪllowances increases (credit) by $1,500 (15 × $100). Purchases-Printers increases (debit) and Accounts Payable The following entries show the purchase and Of the printers are damaged and returns them to the manufacturerįor a full refund. Increases Cash (debit) and increases Purchase Returns andĬBS purchases 80 units of the 4-in-1 desktop printers at a cost Of the allowance is issued in the amount of $480 (60 × $8). Since CBS already paid in full for their purchase, a cash refund The following entry occurs for the allowance. Receives a purchase allowance from the manufacturer of $8 per On June 8, CBS discovers that 60 more phones from the June 1 Purchase Returns andĪllowances is a contra account and decreases Purchases at the end (credit) Purchase Returns and Allowances. This increases Cash (debit) and increases Since CBS already paid in full for their purchase, a full cash Purchases-Phones increases (debit) and Cash decreases (credit) The following entries occur with the purchase and On June 3, CBS discovers that 25 of the phonesĪre the wrong color and returns the phones to the manufacturer forĪ full refund. On June 1, CBS purchased 300 landline telephones with cash at aĬost of $60 each. Purchase Returns and Allowances Transaction Journal CBS does not receive a discount in this case but does pay The company paid on their account outside of theĭiscount window but within the total allotted timeframe for Let’s take the same example purchase with the same credit terms,īut now assume that CBS paid their account on May 25. Reduce Purchases at the end of the period. Purchase Discounts is considered a contra account and will Purchaseĭiscounts increases (credit) for the amount of the discount ($4,020 Cashĭecreases (credit) for the amount owed, less the discount. They made the 10-day window, thus receiving a discount of 5%. Of $4,020 before any discounts are taken. The following entryĪccounts Payable decreases (debit) for the original amount owed On May 10, CBS pays their account in full. Means that CBS has 10 days from the invoice date to pay on theirĪccount to receive a 5% discount on their purchase. These credit terms include a discount opportunity (5/10). The credit terms are a little different than the earlier example. Accounts Payable also increases (credit), but Purchases–Tablet Computers increases (debit) in the amount of Terms are 5/10, n/30, and invoice dated May 1. On May 1, CBS purchases 67 tablet computers at a cost of $60Įach on credit. Purchase Discount Transaction Journal Entries No discount was offered with this transaction. The credit terms were n/15, which is netĭue in 15 days. The following entry occurs.Īccounts Payable decreases (debit) and Cash decreases (credit)įor the full amount owed. On April 17, CBS makes full payment on the amount due from theĪpril 7 purchase. Purchased on credit by CBS, Accounts Payable increases (credit) Purchases-Desktop Computers increases (debit) for the value of The credit terms are n/15 with an invoice date On April 7, CBS purchases 30 desktop computers on credit at aĬost of $400 each. ![]() Under a periodic system, Purchases is used instead of Purchases-Packages increases (debit) by $6,200 ($620 × 10), andĬash decreases (credit) by the same amount because the company paid CBS has enough cash-on-hand to pay immediately On April 1, CBS purchases 10 electronic hardware packages at aĬost of $620 each. \)Ĭash and Credit Purchase Transaction Journal Entries ![]()
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