Question

Accounting for Mar The following events affected the company during the 2017 accounting period: 1. Purchased merchandise on account that cost $4.100. 2. The goods in event I were purchased. FOB shipping point with freight cost of S300 cash. 3. Returned $500 of damaged merchandise lor credit on account. 4. Agreed to keep other damaged merchandise for which the company received a $250 allowance. 3. Sold merchandise that cost $2.750 for $4.750 cash 6. Delivered merchandise to customers under terms FOB destination with freight costs amount ing to $200 cash 7. Paid 53,000 on the merchandise purchased in Event I. Required 3. Record the transactions in general journal format b Open general ledger T-accounts with the appropriate beginning balances and post the jour nal entries to the T-accounts c. Prepare an income statement and statement of cash flows for 2011. d. Explain why a difference does ar does not exist between net income and net cash flow from operating activities

Answer 1

Req a) General Journals:
Date	Acc Title	Debit $	Credit $
1	Merchandise	4100
	Accounts Payable		4100
	(purchased merchandise on credit)
2	Freight Inward	300
	Cash		300
	(being freight paid for goods purchased)
3	Accounts Payable	500
	Purchase return		500
	(damaged merchandise returned)
4	Accounts Payable	250
	Purchase Allowance		250
	(allowance received for damaged goods)
5	Cash	4750
	Sales revenue		4750
	(merchandise sold)
	COGS	2750
	Merchandise		2750
	(cost of sales recorded)
6	Freight Outward	200
	Cash		200
	(freight towards delivery of goods paid)
7	Accounts Payable	3000
	Cash		3000
	(being creditors paid)

Req b) T-Accounts:
Debit	Amount $	Credit	Amount $
Merchandise a/c
1	4100	5	2750
		CB	1350
Accounts Payable a/c
3	500	1	4100
4	250
7	3000
CB	350
Freight Inward a/c
2	300
Cash a/c
5	4750	2	300
		6	200
		7	3000
		CB	1250
Purchase return a/c
		3	500
Purchase Allowance a/c
		4	250
Sales Revenue a/c
		5	4750
COGS a/c
5	2750
Freight outward a/c
6	200

Req c) Income statement:
Sales revenue	4750
Less: COGS	2750
Gross Profit	2000
less:Expenses:
Freight inward	300
freight outward	200
Total expenses	500
Net Income	1500
Cash Flow Statement (operating activities):
Net Income	1500
Less:Inventory raised	-600
Add:AP raised	350
Net cash inflow of Operating Activities	1250
Req d) There exists a difference between the net Income in
Income Statement and Cash balance in the Cash Flow
Statement of $250 because cash has been converted in
not-cash assets ie. Merchandise inventory of 600 and a
credit is received from creditors of 350 and net effect of
600-350 = $250 is over expenditure on other assets.