Question

exhibit 5

7. Refer to Exhibit 5 which illustrates the "regular sale” of an iPhone (i.e. purchases outside the Upgrade Program) under the new “2009 rule". Describe and justify the journal entries of sale of a phone. Make sure you label each account correctly (e.g. cash(+A)) and check balance sheet will remain balanced after these journal entries. How does Total Assets, Total Liabilities, and Net Income immediately change after each sale?

Answer 1

Given Journal entries are:

Dr. Cash                           639

       Cr. Revenue/Sale              639

Dr. Cost of goods sold     447

        Cr. Inventory                            447

• · With respect to sale of iphone , Revenue is generated in the form of cash , as per    accounting principles ,revenue which is a income needs to be credited and asset coming in needs to be debited ( in this case cash is coming in).
• · Coming to the second entry, as the inventory is sold, the quantity is getting decreased from the stock and also asset is going out, therefore it(inventory) needs to be credited. As and when revenue is generated , its corresponding expenditure needs to be debited. Therefore, its corresponding cost in the form of cost of goods sold is debited.
• · Coming to balance sheet, new asset will get added in the form of cash and inventory gets reduced to that extent and the difference between assets and liabilities will be fulfilled by the Profit earned during the sale of iphone , which will be added to the shareholders equity , thereby tallying the balance sheet.