Effect of purchase returns and allowances and freight costs on the journal, ledger, and financial statements: Perpetual system
The trial balance for The Copy Shop as of January 1,2011 was as follows:
Account Titles | Debit | Credit |
Cash | $6,000 |
|
Inventory | 3,000 |
|
Common Stock |
| $7,500 |
Retained Earnings |
| 1,500 |
Total | $9,000 | $9,000 |
The following events affected the company during the 2011 accounting period:
1. Purchased merchandise on account that cost $4,100.
2. The goods in event 1 were purchased. FOB shipping point with freight cost of $300 cash.
3. Returned $500 of damaged merchandise for credit on account.
4. Agreed to keep other damaged merchandise for which the company received a $250 allowance.
5. Sold merchandise that cost $2,750 for $4,750 cash.
6. Delivered merchandise to customers under terms FOB destination with freight costs amounting to $200 cash.
7. Paid $3,000 on the merchandise purchased in Event 1.
Required
a. Record the transactions in general journal format.
b. Open general ledger T-accounts with the appropriate beginning balances, and post the journal entries to the T-accounts.
c. Prepare an income statement and statement of cash flows for 2011.
d. Explain why a difference does or does not exist between net income and net cash flow from operating activities.
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