Question

Handout 5: Accounting for merchandising operations Exercise 1: 1. In May 7 Ali Co. purchase goods FOB shipping point from Ahmed Co, for $5000 on account under credit terms 2/10, n/30, 2. in May 7, Ali Co. paid cash $150 as freight expenses FOB shipping point 3. May 12 Ali Co. returns goods purchased in May 7 to Ahmed Co. for $300 4. in May 15, Ali Co. paid the balance due within the discount period Instructions: Prepare Journal entries assuming periodic inventory system. Purchase transactions: 1- Purchases General Journal Account Title & Explanation Ref. Debit Credit Date May 7 2- Freight expenses Example: in May 7, Ali Co. paid cash $150 as freight expenses FOB shipping point General Journal Date Account Title & Explanation Ref. Debit Credit May 7 3- Purchase Return and allowances General Journal Date Account Title & Explanation May 12 Ref. Debit Credit

Answer 1

Ali Co.
Exercise 1
Journal entries
Date	Account	Debit	Credit	Calculation
Purchase transactions
7-May	Purchases	$        5,000
	Accounts Payable		$        5,000
7-May	Freight expenses	$           150
	Cash		$           150
12-May	Accounts Payable	$           300
	Purchases Returns & Allowances		$           300
15-May	Accounts Payable	$        4,700		=5,000-300
	Cash		$        4,606
	Purchase discounts		$              94	=4,700*2%
Sales transactions
16-May	Accounts Receivable	$        4,000		=40*100
	Sales		$        4,000
16-May	Freight-out expenses	$           350
	Cash		$           350
17-May	Sales Returns & Allowances	$           500
	Accounts Receivable		$           500
20-May	Cash	$        3,430
	Sales discounts	$              70		=3,500*2%
	Accounts Receivable		$        3,500	=4,000-500

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