Question

I need help interpreting the following word problem. It is because I need to make the correct adjusting journal entry in a general journal.

A supplier shipped $3,000 of ingredients on 12/29/17. Peyton receives an invoice for $3,175 for the goods and freight of $175, all dated 12/29/17. Goods were shipped FOB supplier’s warehouse.

Answer 1

The journal entry should be recorrded under 3 scenarios

Scenario 1;  When Peyton receives the invoice

Inventory in transit A/c Dr $3175

To Clearing A/c $3175

(3175 = 3000 + 175 = worth of goods + transportation cost)

NB; Transportation charge is a direct expense for the buyer. So it should be added to the cost of the merchandise.

Scenario 2; Supplier liability should be recorded when the goods are on transit and not received by the buyer

Clearing A/c Dr $3175

To Supplier A/c $3175

Scenario 3; When goods received by the customer

Inventory A/c Dr $3175

To Inventory in transit $3175