Question

The accounting system of B. Ellen includes a sales journal, a purchases journal, a cash receipts journal, a cash payments journal and a general journal. The chart of accounts shows the following titles.

100 Cash at Bank 410 Sales Returns and Allowances 110 Accounts Receivable Control 420 Discount Received 115 Prepaid Insurance 150 Office Equipment 201 Accounts Payable Control 210 Loan Payable 300 B. Ellen, Capital 400 Sales 500 Purchases 503 Purchases Returns 510 Discount Allowed 550 Rent Expense 560 Insurance Expense 570 Sundry Expenses

During July, the transactions were as follows (ignore GST). July 3 6 Purchased inventory on credit from Kelly Ltd. $4400, Invoice 312, terms 1/10, n/30 8 Sold inventory on credit to Leschev Ltd, $4500, terms 2/20, n/60, invoice 532 11 Received a credit note from Kelly Ltd. for inventory returned due to a defective unit purchased on 6 July, $250 12 Issued a cheque (cheque no. 977) to Kelly Ltd for balance owing on invoice 312 13 Sold inventory for cash, $1,575 15 Paid $3,150 for a 12-month insurance policy. The policy is effective from 16 July 2019. Cheque no. 978 20 Purchased inventory on credit from F. Nunn, $3,690, invoice 506, terms 2/10, n/30 25 Received payment from Leschev in settlement of invoice 532 28 Issued cheque for Sundry expenses $ 2,500, Cheque no. 979

Required Record the transactions in the appropriate journals. Indicate how the postings would be made from the journals by entering the relevant posting references

Answer 1

First let us see what it means by the first paragraph information:

1) Cash at Bank 100: which means that band a/c is showing a debit balance of 100, which is shown in balancesheet under current assets.

2)Sales Returns and Allowances 410 : which means that there is 410 worth sales return so the sales is reduced by 410 . journal entry for that will be :

sales Returns and Allowances a/c dr 410

to sales a/c 410

3)Accounts Receivable Control 110 : which means there is outstanding account recievable (debtors) of 110 and it is shown in assets side of balance sheet.

4) Discount Received 420 :Discount Received is shown on the credit side of a profit and loss account.

5) Prepaid Insurance 115:  Prepaid Insurance is a Prepaid expense which means it is shown in the current asset side of balancesheet.

6)Office Equipment 150: Office Equipment is an asset and is shown in the asset side of balancesheet.

7)Accounts Payable Control 201: which means there is outstanding account payable (creditors) of 201 and it is shown in liability side of balance sheet.

8) Loan Payable 210: it is a liability and is shown in liability side of balancesheet.

9) Capital 300: it is shown in liablity side of balancesheet.

10)sales 400: it means company's revenue earned from the sale of products or services of 400. it is shown in p/l account

11)purchases 500:it is the purchases of rawmaterials. it is shown in p/l a/c.

12) Purchases Returns503 : which means that there is 503 worth purchase return so the purchase is reduced by 503 . journal entry for that will be :

purchase a/c dr 503

to purchase return a/c    503

13)discount allowed 510 :Discount allowed is shown on the debit side of a profit and loss account.

14)Rent Expense 550 :Rent Expense is shown on the debit side of a profit and loss account.

15)Insurance Expense 560 : Insurance Expense is shown on the debit side of a profit and loss account.

16)Sundry Expenses 570 : Sundry Expenses  is shown on the debit side of a profit and loss account.

Journal entries for transactions in july

1)  July 6 Purchased inventory on credit from Kelly Ltd. $4400, Invoice 312, terms 1/10, n/30

which means that as per invoice 312 company Purchased inventory on credit from Kelly Ltd. $4400, on terms of 1/10, n/30

the term means that the amount 4400 should be paid in 30 days and also adds a favour that if the amount is paid within 10 days 1% discount is allowed.

journal entry:

inventory a/c dr 4400

to kelly ltd a/c 4400

since we have not paid kelly ltd then kelly ltd is a creditor so there is 4400 of accounts payable so accounts payable is credited with 4400

inventory is treated as asset so while purchasing it is increasing so it will have debit balance.

2)8 Sold inventory on credit to Leschev Ltd, $4500, terms 2/20, n/60, invoice 532

which means that as per invoice 532 company sold inventory on credit to leschev Ltd. $4500, on terms of 2/20, n/60

the term means that the amount 4500 should be paid to us in 60 days and also adds a favour that if the amount is reieved within 20 days 2% discount is allowed.

journal entry :

Leschev Ltd a/c dr 4500

to inventory a/c 4500

since leschev ltd has not paid yet he is a debtor so there is 4500 of accounts recievable so accounts recievable is debited with 4500

inventory is treated as current asset since it is sold it is reduced so it should be credited.

3)11 Received a credit note from Kelly Ltd. for inventory returned due to a defective unit purchased on 6 July, $250

which means that we have returned inventory worth 250 to kelly ltd from whom we pruchased earlier.

so here both inventory decreses and account payable decreases

journal entry

account payable(kelly ltd) a/c dr 250

to inventory a/c 250

4)12 Issued a cheque (cheque no. 977) to Kelly Ltd for balance owing on invoice 312

it also says that balance owing on invoice 312 is settled by cheques

amount payable = 4400- 250= 4150

since we paid in 10 days 1% discount is recieved

4150*1%=41.5

journal entry will be

kelly ltd  a/c dr 4150

bank a/c    4108.5

discount recieved a/c    41.5

kelly ltd the creditor has paid the amount.

5)13 Sold inventory for cash, $1,575

here inventory is sold for cash,so we recieve cash so cash increases and inventory decreases

journal entry

cash a/c dr 1575

to inventory a/c 1575

6)Paid $3,150 for a 12-month insurance policy. The policy is effective from 16 July 2019.. Cheque no. 978

there is no information about the year on which the details are given and only provided date on The policy is effective from 16 July 2019 so it is difficult to understand how much is current years or how much is prepaid or outstanding.

journal entry

prepaid insurance a/c dr 3150

to bank a/c 3150

prepaid expense is treated as current asset and 3150 from bank is credited since its paid by cheque.

7)20 Purchased inventory on credit from F. Nunn, $3,690, invoice 506, terms 2/10, n/30

which means that as per invoice 506 company Purchased inventory on credit from f nunn $3690 on terms of 2/10, n/30

the term means that the amount 3690 should be paid in 30 days and also adds a favour that if the amount is paid within 10 days 2% discount is allowed.

journal entry:

inventory a/c dr 3690

to f nunn a/c   3690

8)25 Received payment from Leschev in settlement of invoice 532

since leschev paid within 20 days 2% discount is allowed to them

4500*25 =90

bank a/c dr 4410

discount allowed a/c dr 90

to leschev a/c 4500

leshev is a debtor since he settled his amount he is credited.

9)Issued cheque for Sundry expenses $ 2,500, Cheque no. 979

expense paid by bank

bank a/c dr 2500

to sundry expenses a/c 2500