Question

AM Enterprise, a merchandising business, has been in operation for a few years. The business used the perpetual inventory system in its transaction recording. Below is the business’s Trial Balance as at 31 December 2019: AM Enterprise Trial Balance as at 31 December 2019 Debit Credit RM RM Cash 17,500 Account Receivable 6,200 Merchandise Inventory 8,000 Office Equipment 24,000 Accumulated Depreciation - Office Equipment 7,200 Account Payable 6,500 Capital 42,000 55,700 55,700 The transactions occurred during the month of January 2020 are as follows: 1. Purchased merchandise on account from LY Sdn. Bhd., listed price of RM24,000, trade discount 15%, with credit term of 2/10, n/30, FOB destination. 2. Sold merchandise to NZ Enterprise for RM19,600 under credit terms of 3/15, n/30, FOB shipping point. The cost of merchandise sold was RM8,800. 3. Returned faulty merchandise to LY Sdn. Bhd. of RM6,000. 4. Sold merchandise to ED Enterprise for cash RM10,000. The cost of merchandise sold was RM5,400. 5. Paid LY Sdn. Bhd. the amount due within the discount period. 6. Paid salaries expense of RM3,600, rent expense of RM2,800, and miscellaneous expense of RM3,200. 7. Office equipment is depreciated at RM2,400 per year. REQUIRED: (a) Prepare journal entries to record the above transactions and adjustment. BKAL1013 Business Accounting 5 (b) Prepare Statement of Profit or Loss and Other Comprehensive Income (multiple step) for the month ended 31 January 2020 and Statement of Financial Position as at 31 January 2020. (c) Explain the difference between the nature of AM Enterprise as a merchandise business and EDC Hotels and Resorts as a service business.

Answer 1

Trial Balance as at 31 December 2019                                     DEBIT            CREDIT

Account Receivable                                                                      6,200

Merchandise Inventory                                                                8,000

Capital                                                                                                                       42,000

                                                                                                                                   

Office Equipment                                                                          24,000                                                         

Debit Credit RM RM Cash                                                         17,500

Accumulated Depreciation - Office Equipment                                       7,200

Account Payable                                                                                                    6,500

TOTAL                                                                                              55700             55700

                                                           

                                              JOURNAL ENTRIES

PURCHASES A/C           DR.                                                       20400

        TO LY Sdn. Bhd A/C                                                                                     20400

NZ Enterprise A/C          DR.                                                       19600

       TO SALES A/C                                                                                                 19600

LY Sdn. Bhd A/C            DR.                                                       5100

        TO PURCHASE RETURN A/C                                                                    5100

CASH A/C                        DR.                                                       10000

         TO SALES A/C                                                                                               10000

LY Sdn. Bhd A/C           DR.                                                       15300               

          TO CASH DISCOUNT A/C                                                                         306

           TO CASH A/C                                                                                               14994

SALARY A/C                   DR.                                                       3600

RENT A/C                        DR.                                                       2800

MISCELLANEOUS EXP. A/C DR.                                            3200

          TO CASH A/C                                                                                                9600

DEPRICIATION A/C       DR.                                                       2400

          TO OFFICE EQUIPMENT A/C                                                                    2400

DR.                                     Statement of Profit or Loss                                                  CR.

PARTICULARS

PARTICULAR

TO OPENING STOCK A/C      8000 TO PURCHASES A/C 20400                                             LESS. PURCHASE     RETURN A/C           (5100)    15300 TO GROSS PROFIT                   15400                                                                      38700 TO SALARY A/C                          3600 TO RENT A/C                              2800 TO MISCELLANEOUS EXP.     3200 A/C TO DEPRICIATION A/C            2400 TO NET PROFIT A/C                   3706      15706

BY SALES A/C                          29600 BY CLOSING STOCK A/C         9100                                                             38700 BY GROSS PROFIT A/C 15400 BY CASH DISCOUNT A/C 306                                                               15706

   Statement of Financial Position

AS AT 31 JANUARY 2020

LIABILITY Account PAYABLE CAPITAL 42000 ADD: NET       3706 PROFIT TOTAL LIABILITY

AMOUNT 6500 45706 52206

ASSETS Account Receivable     25800 Merchandise Inventory                      Office Equipment        24000 LESS:ACCUMULATED             DEP      (9600)    Debit Credit RM RM Cash    TOTAL ASSESTS

AMOUNT 25800 9100 14400 2906 52206

The primary difference between a merchandising and a service-based business is the presence of inventory. Merchandising businesses sell goods to customer, whereas service-based businesses do not. The companies' financial statements, including the income statements, must reflect this difference.