Write the journal entries to record the following transactions.
A) Purchased $4,900 of merchandise from a supplier on account, terms FOB shipping point, 1/10, n/30, transportation charges of $80 were added to the invoice.
B) Received a credit memorandum for $500 for merchandise returned.
C) Paid the amount owed prior to the end of the discount period
Journal Entry A):
To record the purchase of merchandise from a supplier on account with FOB shipping point terms, transportation charges added, and a discount period.
Date: [Date of the transaction]
Account Debit Credit
Merchandise Inventory $4,900
Accounts Payable $4,900
Explanation:
- Debit Merchandise Inventory: Increase the Merchandise Inventory account by the cost of the purchased merchandise ($4,900).
- Credit Accounts Payable: Increase the liability in the Accounts Payable account by the same amount ($4,900) since it is a purchase on account.
Journal Entry B):
To record the return of merchandise and issuance of a credit memorandum.
Date: [Date of the transaction]
Account Debit Credit
Accounts Payable $500
Merchandise Inventory $500
Explanation:
- Debit Accounts Payable: Decrease the liability in the Accounts Payable account by the returned amount ($500) since it is being credited.
- Credit Merchandise Inventory: Decrease the balance of Merchandise Inventory account by the same amount ($500) since the returned merchandise should be removed from inventory.
Journal Entry C):
To record the payment made within the discount period for the outstanding amount.
Date: [Date of the transaction]
Account Debit Credit
Accounts Payable $4,420
Cash $4,420
Explanation:
- Debit Accounts Payable: Decrease the liability in the Accounts Payable account by the full amount payable after deducting the discount ($4,900 - $490 = $4,410). This reflects that the payment has been made.
- Credit Cash: Decrease the cash account by the same paid amount ($4,410) because cash is used to settle the outstanding liability.