Question

I am having trouble with transaction 5 in the 10th edition SUA packet. I included the transaction description, flowchart, and the promissory note.

I confused as to what I'm supposed to do. Do I put this in the ledger or journal? If so which one; cash reciepts, sales journal etc. Please help! I'm not an accounting major so things are a bit confusing for me!

Vendor address: 1285 Colgrove Ave., Pierre, SD 57501 Freight carrier: Interstate Motor Freight Freight charges: FOB shipping point (i.e., will be paid later by Waren) Allowances: None Use purchase order No. 325 (Doc. No. 16) as a guide. Use the price list (Doc. No. 3). No receiving or recording occurs at this point for this transaction. Tear document apart and file, following the flowchart guidance. Received office supplies from Chicago Office Supply as listed on purchase order No. 327 (Doc. No. 16), a copy of which is being held in accounting. Chicago Office Supply's vendor invoice No. 2378 (Doc. No. 18) was received with the goods. All supplies ordered were received in good condition and taken directly to the office, but the invoice was not paid. 19th Yes p.22 5 19th Yes Borrowed $90,000 from First American Bank and Trust by issuing a two-year note pay (Doc. No. 14) with a stated annual interest rate of 5.5% erican electronically deposited the full loan proceeds of $90,000 into Waren's checking account. Reviewed the terms and conditions of the note and signed it (Ray Kramer) as the borrower. p.21 File the note in the Shipping/Banking file tab. Received sales return request No. R8034 (Doc. No. 12) from Eastern Wisconsin University (EWU). The request was approved, and the acknowledgment copy mailed to EWU. 6 19th Yes p.20 You can't record the sales return yet because the goods have not yet been received from Eastern Wisconsin University. Received vendor invoice No. 105963 (D No. 18) from First Security Insurance for the fourth quarter's health insurance coverage for employees and immediately issued a check (Doc. No. 20) for payment in full. 7 20th Yes

Answer 1

In this case there is two consequences first one is accounting treatment in the book of Ray Kamer and Second one is in the book of First American Bank and Trust.

In case of in the book of Ray kamer the Accounting treatment will be as follows:

when Loan received it is treated as Cash receipt and accounting entry will be :-

Bank A/c Dr. $90000

To Bank Loan A/c $90000

In case of finance charge or Interest for 2 years. :-

Interest on Bank Loan A/c Dr. $9900

To Bank Loan A/c $9900

When the loan is repaid after 2 years the enrty will be:-

Bank Loan A/C Dr. $99900

To Bank A/c $99900

Bank Interest will also charged in Profit & Loss Account as:-

Profit & Loss A/c Dr. $9900

To Interest on Bank Loan A/c $9900

In case of in the books of First American Banks and Trust the accouting treatment will be as follows

Since providing Loans and Advances are the source of income of the Bank so the enrty will be as follows

when loan provided to Ray kamer :-

Loan and Advances A/c Dr. $90000

To Ray kamer (Customer) A/c $90000

When bank earns interest @5.5% on loan :-

Ray kamer A/c Dr. $9900

To Interest Received A/c $9900

When customer repaid the loan with interest :-

Bank A/c Dr. $99900

To Ray Kamer A/c $99900

When Interest Income charged to Banks profit & Loss A/c :-

Interest Received A/c Dr. $9900

To Profit & Loss A/c $9900