Question

Note: I will check this homework on Sunday/Monday next week. Question (Homework): - Journalize the following merchandising transactions for Abu Dhabi Systems assuming it uses a perpetual inventory system. > On January 1, Abu Dhabi Systems purchases merchandise for $5,000 on credit with terms of 3/10, n/30, FOB shipping point; invoice dated January 1. > On January 8, Abu Dhabi Systems pays cash for the January 1 purchase. > On January 12, Abu Dhabi Systems discovers and returns $1,000 of defective merchandise purchased on January 1 for a cash refund. > On January 15, Abu Dhabi Systems pays $280 cash for transportation costs (freight expenses) with the January 1 purchase. > On January 18, Abu Dhabi Systems sells merchandise for $3,000 on credit. The cost of the merchandise is $2,000. > On January 20, the customer returns merchandise from the January 18 transaction. The returned items are priced at $600 and cost $420; the items were not damaged and were returned to inventory.

Answer 1

Journal Entries in the book of Abu Dhabi Systems:
Date	Particulars	Debit	Credit
		$	$
Jan-01	Purchase A/c	5000
	To Creditors A/c		5000
	( Being merchantise purchased on FOB basis with
	the payment terms 3/10, n/30 )
Jan-08	Creditors A/c	5000
	To Cash		4850
	To Cash Discount received*		150
	( Being payment made for the purchase made on
	on Jan-01, after availing discount as per 3/10 )
Jan-12	Cash A/c	1000
	To Purchase A/c		1000
	( Being purchase returns accounted )
Jan-15	Freight Expenses A/c	280
	Cash		280
	( Being freight charges accounted )
Jan-18	Debtors A/c	3000
	To Sales		3000
	( Being sales made on credit )
Jan-20	Sales A/c	600
	To Debtors#		600
	( Being sales return by customer )

* As per the payment terms Abu Dhabi Systems - eligible for a discount of 3% if the payment is made within 10 days.

Since the payment has been made before 10 days the discount has been availed.

# Sales return - the average cost of the material sold and material returned is not same. However, there is no need to pass separate journal entry to this effect. When we prepare income statement, the effect will be taken care by way of value of closing inventory.