Prepare the journal entries to record these transactions on Huntington Kitchen’s books using a periodic inventory system.

Question

Prepare the journal entries to record these transactions on Huntington Kitchen’s books using a periodic inventory system.

  1. On March 2, Huntington purchased £900,000 of merchandise on account from Saunder Cabinets, terms 2/10, n/30.
  2. On March 6, Huntington returned £184,000 of the merchandise purchased on March 2.
  3. On March 12, Huntington paid the balance due to Saunder.

Answer

Journal entries help in recording the transactions in books in a systematic manner. Each transaction that occurs in an organization is required to have a journal entry. There is a need to debit one account and credit another account for making the entry in a journal.

Explanation:

The debit and credit side of each of the journal entries that are recorded in the books gives the same value. This is because a transaction tends to impact two different sides in equal measure.

Required journal entries in the book of Huntington Kitchen:

Formula:

ABCD
1DateAccount Titles and ExplanationDebit (£)Credit (£)
2March 2Purchase900000
3Accounts payable900000
4(Merchandise purchased on account)
5
6March 6Accounts payable184000
7Purchase return184000
8(Merchandise retuned)
9
10March 12Accounts payable=C2-C6
11Purchase discount=C10*2%
12Cash=C10-D11
13(Paid for accounts payable at a discount)

Result:

DateAccount Titles and ExplanationDebit (£)Credit (£)
March 2Purchase900,000
Accounts payable900,000
(Merchandise purchased on account)
March 6Accounts payable184,000
Purchase return184,000
(Merchandise retuned)
March 12Accounts payable716,000
Purchase discount14,320
Cash701680
(Paid for accounts payable at a discount)

Explanation:

On March 2, the purchase is debited as it is an expense, and “accounts payable” is credited as it is increasing the liability.

On March 6, “accounts payable” is debited as it is getting decreased due to the return of merchandise, and “Purchase return” is credited as an expense related to the purchase is getting decreased.

On March 12, “Accounts payable” is credited as a liability is getting reduced. “Purchase discount” is credited as it is an income that is provided as the payment is made within 10 days. Cash is credited as it is getting reduced.

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