Question

Record the following transactions for the month of August 2012 in the financial statements effects template below and record the journal entries.

Part 1:

A) Purchased $4,000 in inventory on credit.

B and C) Sold inventory purchased in (A) for $7,000 in cash. (Note: requires 2 entries)

D) Received and paid electricity bill for $800 related to August

E) Received $12,000 in cash for inventory to be delivered in September 2012.

Part 2: Record the journal entries for each transaction

Balance Sheet

Income Statement

Transaction

Cash

+

Noncash Assets

=

Liabilities

+

Contributed Capital

+

Earned Capital

Rev.

−

Exp.

=

Net

Asset

A)

B)

C)

D)

E)

Answer 1

Part 1 Journal entries

Part 2 Table will be completed in the following manner:

Rationale

A) Purchased $4,000 in inventory on credit - inventory comes in hence it Assets increase and liabilities in the form of accounts payable also increase

B and C) Sold inventory purchased in (A) for $7,000 in cash. - when sale of goods are done, 2 entries take place

one for recording sales, another for recording cost of goods sold

For sales transaction cash is coming hence hence assets will increase and revenues are coming in too hence revenues will increase too

For cost of goods sold, cost of goods sold expenses will will increase and inventory is going out hence assets will decrease

D) Received and paid electricity bill for $800 related to August - expenses will increase and cash is going out so assets will decrease

E) Received $12,000 in cash for inventory to be delivered in September 2012 - cash is coming in hence assets will increase, and liabilities in the form of unearned revenues will increase too

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