Question

Mackalya is an office secretary at the "All American Office Products Company." This Company sells office supplies and office equipment. The secretary fills the copy machine with paper. Suppose Mackalya was nearly out of paper in the office; so she went out into the sales area of the facility and took 8 boxes (cost $160) of paper from the sales area and brought them back to use in the office. None of that paper has been used yet. What journal entry should be made. What will be the effect on the financial statements if no adjusting entry is made for this transaction. Suppose the Owner's children come to the office and take (with the owner's permission) $60 of office supplies to be used by them. What entry should be made. Explain your answers. Answer all parts of this question.

Answer 1

Answer -

Transaction -

8 boxes of paper taken from sales area and filled the same in office machine, although same were not consumed yet.

Journal Entry -

Printing & Stationery Expense Dr $ 160

To Cost of goods sold or Trading account A/c $160

Impact on the financial statement-

Cost of these paper will be treated as office expense (Debited to Trading and Profit / Loss Account) and same will be reduced from either trading account or cost of goods sold (Credited to Trading and Profit / Loss Account)

Transaction - The Owner's children come to the office and take (with the owner's permission) $60 of office supplies to be used by them.

Assumption $ 60 is cost of supplies, no profit is included in this.

Impact on financial statement -

This transaction will be treated as drawing by owner and same will be reduced from owner's capital.On one side this transaction will result in a reduction of cost of goods sold / trading account on other side it will reduce capital account.

Journal Entry -

Owner Drawing Account Dr

or Owner Capital Account Dr. $ 60

To cost of goods sold or Trading account A/c $60