Question

James Company began the month of October with inventory of $28,000. The following inventory transactions occurred during the month:

The company purchased merchandise on account for $41,500 on October 12, 2018. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $630 were paid in cash.

On October 31, James paid for the merchandise purchased on October 12.

During October, merchandise costing $19,950 was sold on account for $30,600.

It was determined that inventory on hand at the end of October cost $49,350.

Required:
1. Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold.
2. Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions.

Answer 1

1. Journal entry by periodic method

Date	Particulars	L.F	Amount ($)	Amount ($)
2018
Oct-12	Purchases		40,670
	Freight Inwards		630
	Account payable			40,670
	Cash			630
	(For goods purchased on account)
	(41,500*2%)
Oct-31	Account Payable		40,670
	Interest expense		830
	Cash			41,500
	(for paid for merchandise)
Oct-31	Account Receivable		30,600
	sales			30,600
	(for merchandise sold)
	Adjusting entry
Oct-31	Cost of goods sold		19,950
	Inventory		49,350
	Purchase			40,670
	Freight In			630
	Inventory			28,000

2. Journal entry by perpetual method

Date	Particulars	L.F	Amount ($)	Amount ($)
2018
Oct-12	Merchandise Inventory		41,300
	Account payable			40,670
	Cash			630
	(For goods purchased on account)
	(41,500*2%)
Oct-31	Account Payable		40,670
	Interest expense		830
	Cash			41,500
	(for paid for merchandise)
Oct-31	Account Receivable		30,600
	sales			30,600
	(for merchandise sold)
Oct-31	Cost of goods sold		19,950
	Inventory			19,950
	(for cost of goods sold)