Question

Prepare journal entries to record the following merchandising transactions of Lou’s, which uses the perpetual inventory system and the gross method. Hint: It will help to identify each receivable and payable; for example, record the purchase on August 1 in Accounts Payable—Aron.
  

Aug.		1		Purchased merchandise from Aron Company for $6,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.
		5		Sold merchandise to Baird Corp. for $4,200 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $3,000.
		8		Purchased merchandise from Waters Corporation for $5,000 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8.
		9		Paid $160 cash for shipping charges related to the August 5 sale to Baird Corp.
		10		Baird returned merchandise from the August 5 sale that had cost Lou’s $500 and was sold for $1,000. The merchandise was restored to inventory.
		12		After negotiations with Waters Corporation concerning problems with the purchases on August 8, Lou’s received a price reduction from Waters of $500 off the $5,000 of goods purchased. Lou's debited accounts payable for $500.
		14		At Aron’s request, Lou’s paid $130 cash for freight charges on the August 1 purchase, reducing the amount owed (accounts payable) to Aron.
		15		Received balance due from Baird Corp. for the August 5 sale less the return on August 10.
		18		Paid the amount due Waters Corporation for the August 8 purchase less the price allowance from August 12.
		19		Sold merchandise to Tux Co. for $3,600 under credit terms of n/10, FOB shipping point, invoice dated August 19. The merchandise had cost $1,800.
		22		Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Lou’s gave a price reduction (allowance) of $600 to Tux, and credited Tux's accounts receivable for that amount.
		29		Received Tux’s cash payment for the amount due from the August 19 sale less the price allowance from August 22.
		30		Paid Aron Company the amount due from the August 1 purchase.

Answer 1

Solution:

Journal entries in the books of Lou
Date	Particulars	Dr.	Cr.
Aug-01	Inventory a/c	6000
	To Accounts Payable-Aron		6000
(Purchases made on account on terms 1/10 net 30)
Aug-05	Cost of goods sold a/c	3000
	To Inventory		3000
(Cost value of inventory sold)B28:E6B28:E62
Aug-05	Accounts receivable-Baird a/c	4200
	To Sales		4200
(Sales made to Baird corp on account under terms 2/10, net60)
Aug-08	Inventory a/c	5000
	To Accounts Payable-Waters corp		5000
(Purchases made on account on terms 1/10 net 45)
Aug-09	Frieght charges a/c dr	160
	To cash		160
	(Being frieght charges paid)
Aug-10	Inventory a/c dr	500
	To Cost of goods sold		500
(Cost value of goods returned)
Aug-10	Sales returns a/c dr	1000
	To Accounts receivable		1000
(Sales returns by Baird)
Aug-12	Accounts payable - water corp	500
	To Inventory		500
	Reduction In cost on negotiation
Aug-14	Frieght charges a/c dr	130
	To cash a/c		130
	( frieght charges paid)
	Accounts payable- Aron	130
	To frieght charges		130
( Being amount paid as frieght charges reduced from accounts payables
Aug-15	Cash a/c dr	1980
	Discount provided	20
	To Accounts receivable		2000
(Cash received from Baird corp after discount Provided)
Aug-18	Accounts Payable- water corp	4500
	To Cash		4455
	To Discount received		45
(Final setttlement after discount received)
Aug-19	Cost of goods sold a/c	1800
	To Inventory		1800
(Cost value of inventory sold)
Aug-19	Accounts receivable-Tux a/c	3600
	To Sales		3600
(Sales made to Tux corp on account )
Aug-22	Inventory a/c dr	600
	To accounts receivable- Tux		600
(Reduction in sale value)
Aug-29	Cash a/c dr	3000
	To accounts receivable- Tux		3000
(Final settlement received after sales discount)
Aug-30	Accounts payable- Aron	5870
	To cash		5,811
	To Discount received		59
(Final setttlement made after discount received)