Question

Q3 (Max marks: 12) Consider the following transactions that occurred in Aug for ABC Ltd Purchased $4,500 of inventory from M&M, terms 2/10, net 20. Aug 1 Sold $1,500 to B&B Inc., terms 1/10, net 30 (cost $840) Aug 5 B&B Inc. returned goods worth $250 (cost $167) Aug 8 Paid M&M Aug 20 Received payment from B&B Inc. Aug 29 Required: a) What type of inventory system is ABC using - periodic or perpetual? (Marks: 0.5) b) Journalise June transactions for ABC Ltd. No explanations are required, but account for GST assuming the amounts shown do not include GST (Marks: 11.5)

Answer 1

	ABC using Perpetual Inventory System because under perpetual inventory system merchandise inventory sold and cost of goods sold are updated regularly in each transactions and for purchase transaction,instead of debited purchases inventory are debited,the term purchase is not used under Perpetual Inventory system.
	For Example Goods sold on credit for $1000,and cost of goods sold =$780
	Journal Entries under Perpetual Inventory System
	Accounts Receivable	$           1,000.00
	To Sales		$                                            1,000.00
	Cost of goods sold	$               780.00
	To Merchandise Inventory		$                                                780.00
	For Example Purchase of goods worth $2000
	Jouranl Entry
	Merchandise Inventory	$           2,000.00
	To Cash		$                                            2,000.00
	ABC
	General Journal
Date	Particular	Amount (Dr)	Amount (Cr)
01-Aug	Merchandise Inventory	$           4,500.00
	To Accounts Payable		$                                            4,500.00
	(Being amount of goods purchased from M& M term 2/10,net20)
05-Aug	Accounts Receivable	$           1,500.00
	To Sales		$                                            1,500.00
	(Being amount of goods sold on credit to B &B Inc. terms 1/10 net 30)
05-Aug	Cost of goods sold	$               840.00
	To Merchandise Inventory		$                                                840.00
	(Being amount of cost of goods sold)
08-Aug	Sales Return and Allowances	$               250.00
	To Accounts Receivable		$                                                250.00
	(Being amount of goods returned by B & B Inc.)
08-Aug	Merchandise Inventory	$               167.00
	To Cost of goods sold		$                                                167.00
	(Being amount of cost of goods returned by B&B Inc.)
20-Aug	Accounts Payable	$           4,500.00
	To Cash		$                                            4,500.00
	(Being amount paid to M & M )
29-Aug	Cash($1500-$250)	$           1,250.00
	To Accounts Receivable($1500-$250)		$                                            1,250.00
	(Being amount received from B&B Inc.)
	Note: Term 2/10,Net 20 means if amount is paid within 10 days, 2% discount , but in this case amount paid to M&M after 10 days, so no discount.
	Term 1/10,Net 30 means if the buyer paid the amount of sale within 10 days 1% trade discount is allowed but B& B Inc. paid after 10 days so no discount allowed.