Journalizing Transactions of a Merchandising Business

Which of the following accounts is used in a periodic inventory system but not in a perpetual inventory system?

• Sales Discounts

• Purchases

Answer explanation

The following accounts are not used in a perpetual inventory system:

Purchases

Purchase Returns and Allowances

Purchase Discounts

Freight In

What percentage is the trade discount in the given purchase term, P150,000 less 10, 1/15, n/30?

• 1

• 10

• 30

• 15

Answer explanation

10% in 'less 10' - Trade discount

1% in '1/15, n/45' - Cash discount (1% will be granted if payment is made within the discount period)

15 in '1/15, n/45' - Discount period (the discount is available within 10 days from the date of sale/purchase)

45 in '1/15, n/45' - Credit period (The account balance will be due 45 days from the date of sale/purchase)

When will be the due date of an account for a sale made on March 21 with the terms, 1/10, n/45?

• March 31

• April 30

• May 5

• June 15

Answer explanation

March 21 - 31 > 10 days

April 1 - 30 > 30 days

May 1 - 5 > 5 days

Total - 45 days

The entry in the buyer's general journal to record a purchase of merchandise worth P35,000 with terms 1/5, n/20 would include a

• debit to Accounts Receivable of P34,650.

• credit to Accounts Payable of P34,650.

• debit to Purchases of P35,000.

• credit to Sales of P35,000.

Answer explanation

Dr. Purchases, P35,000

Cr. Accounts Payable, P35,000

Cash discount is disregarded on the day of sale/purchase. It is only considered upon full settlement of the account.

Bravo Trading sold 130 1-liter cans of paint at P750 per can on July 6 to Hazel Company. Terms of the sale are 2/15, n/30, invoice dated July 6. On July 20, Hazel Company discovered that 17 cans were the wrong color and returned them to Bravo Trading. Which of the following statements is TRUE?

• Bravo Trading should make a credit to Accounts Payable on July 20.

• Bravo Trading should make a debit to Sales Returns and Allowances on July 20.

• Hazel Company should make a debit Cash on July 20.

• Hazel Company should make a credit to Accounts Receivable on July 20.

Answer explanation

Bravo Trading:

Dr. SRA, Cr. AR

Hazel Company:

Dr. AP, Cr. PRA

On July 10, Alpha Trading bought merchandise from Azure Company worth P80,000 less 10-5 with terms 1/15, n/45. Alpha Trading paid 30% of the invoice price on the same day. In its books how much should be recorded by Azure Company as Accounts Receivable from Alpha Trading on July 10?

(a)  

Answer explanation

List Price P80,000

Less: Trade Discount (P80,000 x .10) 8,000

Adjusted list price 72,000
Less: Trade Discount (P72,000 x .05) 3,600

Invoice Price 68,400

Less: Down payment (P68,400 x .30) 20,520

Accounts Receivable P47,880