Accounting 2 DR Selim Chapter 1

Accounting II
Chapter 1
2020 - 2021
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Dr↑ Cr↓ Cr↑ Dr↓
Assets = Liabilities + Owners’ Equity
Current Assets +Accounts Payable +Owner’s Capital
+Cash +Notes Payable -Owner’s Drawings Dr↑ Cr↓
+Accounts Receivable +Salaries and Wages Payable +Income Summary
+Notes Receivables +Interest Payable Cr↑ Dr↓ Dr↑ Cr
+Interest Receivable +Dividends Payable +Revenues -Expenses
+Dividends Receivable +Income Taxes Payable +Service -Advertising
+Merchandise Inventory +Bonds Payable +Sales -Amortization

+Interest -Bad Debt
+Supplies +Discount on Bonds Payable
+Gain on -Cost of Goods Sold
+Prepaid Insurance +Premium on Bonds Payable -Depreciation
Disposal of
+Prepaid Rent +Mortgage Payable Plant Assets -Freight-Out
-Allowance for Doubtful +Unearned Service Revenue -Sales -Income Tax
Discounts Dr↑ -Insurance

Accounts Cr↑ Dr↓ +Unearned Rent Revenue
Cr↓ -Interest
Fixed Assets
-Loss on
+Land -Sales Returns Disposal of
+Equipment and Allowances Plant Assets
Dr↑ Cr↓
-Accumulated -Maintenance
and
Depreciation—Cr↑ Dr↓
Repairs
+Buildings
Expense
-Accumulated -Rent
Depreciation—Cr↑ Dr↓ -Salaries and Wages
-Supplies
+Copyrights
-Utilities
+Goodwill
+Patents
1 Adapted By Dr Selim
Chapter 1
Accounting for Merchandising Operations
Merchandising Operations
‫ في الشركات انها بتشتري البضاعة بسعر قليل عشان تبيعها بسعر أعلى بحيث‬Merchandise ‫فكرة عملية شراء ال‬
‫ وده بنحسبه عن طريق بنشوف‬Gross Profit ‫ أو‬Gross Margin ‫ واللي في الحالة ديه بنسميه‬Profit ‫تحقق‬
‫ أو اللي بنسميها تكلفة‬Cost of Goods Sold‫ و بين ال‬Sales Revenues ‫الفرق مابين اإليرادات بتاعت الشركة ال‬
.‫البضاعة اللي الشركة باعتها‬
:↓‫زي المثال ده‬
Simple Income Statement

Sales Revenue $ 100,000
Less: Cost of Goods Sold (60,000)
Gross Margin / Profit 40,000
Less: Operating Expenses (30,000)
Net Income $10,000
40,000 ‫ بيساوي‬Gross Profit ‫ بالتالي ال‬60,000 ‫ تكلفته عليها‬$100,000 ‫ ب‬Merchandise ‫الشركة باعت‬
‫ في صورة بسيطة‬...10,000 ‫ بيساوي‬Net Income‫ فهيكون ال‬30,000‫ ب‬Operating Exp ‫هتخصم منه‬
.Income Statement‫لل‬
1. Accounting for Sale Merchandise

‫ وال اتباع‬Cash ‫ ده اتباع مقابل‬Merchandise ‫ الزم تكون عارف ال‬Merchandise ‫مهم جداً لما الشركة تبيع‬
On Credit / On Account
Debit‫ زاد في ال‬Cash‫ يبقي طبيعي جداً حساب ال‬Cash ‫ ده مقابل‬Merchandise‫في حالة الشركة باعت ال‬
‫ زي ما هتشوف‬... Cash ‫ بدل ال‬Accounts Receivable ‫ يبقى الشركة هيجيلها‬On Credit ‫ولو الشركة باعت‬
.‫في المثال اللي جاي‬
Example 1 (To record Cash Sale)
The journal entry to record cash sale for $1,000 Merchandise is as follows
Dr Cr
Cash $1,000
Sales Revenue $1,000
Example 2 (To record Credit Sale)

The journal entry to record credit sale for $1,000 Merchandise is as follows
Dr Cr
Account Receivable $1,000
1.1. Trade and Quantity Discounts
Trade ‫ اللي بتبيعه وده بيكون في صورتين أو لسببين؛ يا أما‬Merchandise‫ على أسعار ال‬Discount ‫أحينا ً الشركات بتعمل‬
.)‫ بناء على الكمية ال ُمباعة (خصم على بيع الجملة‬Quantity Discount ‫ أو بيكون‬،‫ بنا ًء على عروض مختلفة‬Discount
Example 3
X Company Offers 10% trade discount on its product. The product has a list price $100/unit.
The company Sold 50 units.
Required: Prepare the journal entries to record the above event.
Solution:
The sales Revenue (net of trade discount) = $100 x 50 x 90%= $4,500
To record sale of merchandise for cash (or on account):
Dr Cr
Cash/Account Receivable $4,500
1.2. Sale Discount (Cash Discount)
‫ لكن بتعمل خصومات‬On Credit ‫ أنها بتبيع بضاعتها‬Merchandising Firms ‫في الغالب اللي بيتم في ال‬
‫ لو سددت‬%2 ‫ واللي معناه أن الشركة هتديلك خصم‬،2/10, n/30 ‫للمشترين اللي بيسددوا خالل فترة محددة زي نظام‬
‫ و‬.‫ أيام مش هتاخد أي خصم‬10 ‫ ولو سددت بعد ال‬،‫ أيام‬10 ‫فلوس البضاعة اللي عليك (كمشتري) في مدة أقصاها‬
.‫ يوم‬30 ‫ معناها أنك الزم تدفع إجمالي الفلوس اللي عليك في مدة أقصاها‬n/30
1.2.1. The Gross Method of Recording Sale Discount

‫ بال‬Receivables ‫ وال‬Sale Revenue ‫ أول خطوة بتسجل ال‬،Sale Discount ‫ عشان تسجل ال‬Gross Method‫في ال‬
10 ‫ في خالل فترة الخصم وليكن ال‬Merchandise‫ وفي تاني خطوة في حالة أن المشتري دفع فلوس ال‬،Gross Amount
‫ برضو و بتسجل ان ال‬Dr ‫ بعد الخصم و بتسجل قيمة الخصم في ال‬Debit ‫ زاد عندك في ال‬Cash ‫ بتسجل أن ال‬،‫أيام‬
.‫ بإجمالي قيمتها‬Cr ‫ قلت في ال‬Receivables
‫ مش بيستفاد بأي خصم وانت‬،‫ أيام فترة الخصم‬10 ‫ بعد ال‬Merchandise ‫وفي حالة أن المشتري دفع فلوس ال‬
.Cr ‫ قلت‬Receivables ‫ بإجمالي قيمته وال‬Dr ‫ زاد عندك في ال‬Cash‫ بتسجل فقط أن ال‬Merchandising Firm‫كا‬
Example 4
On March1, X Company sold merchandise for $10,000 with the terms 2/10, n/30.
Required: Prepare the journal entries using the gross method, to:
a. Record the above transaction.
b. Record the payment under the following two independent cases:
1) Payment is made on March 6.
Solution:
a. The journal entry to record the sale transaction (on credit) on March 1:
Dr Cr
Account Receivable $10,000
b. Recording Payment:
Dr Cr
Cash 9,800
Cash Discount (Sales Discount) 200
Account Receivables $10,000

Dr Cr
Cash $10,000
1.3. Sales Returns and Allowances
(Sales Returns) ‫ بتسمح للمشتريين أنهم يرجعوا البضاعة اللي اشتروها‬Merchandising ‫بعض شركات ال‬
‫( لو شاريين‬Receivables Decrease( ‫ بتاعهم‬Credit‫لعيوب في البضاعة أو أي شئ آخر ويستردوا فلوسهم أو ال‬
‫ أو أنهم يحتفظوا بالبضاعة مايرجعوهاش للشركة ومايستردوش فلوسهم ولكن الشركة تعملهم تخفيض‬.On credit
.‫ المطلوب سداده‬Merchandise‫على سعر ال‬
.‫ ديه‬Transactions‫ وهو الحساب اللي بيتسجل فيه ال‬Sales Returns and Allowances ‫وده مفهوم ال‬
X Company
Partial Income Statement
For the year ended December 31,2015
Gross Sales Revenue $ XXX
Less: Sales Returns and Allowances (XXX)
Less: Sales Discounts (XXX)
Net Sales $XXX
Contra ‫ بيتعاملوا على أنهم‬Sales Discounts ‫ وال‬Sales Returns and Allowances ‫خد بالك أن ال‬
.Gross Sales‫ بيتخصمو من ال‬Accounts
Example 5
Assume that X company sold $10,000 of goods to Y company. Y company found $2000 of
these goods to be defective and returned them for credit.
Required: Prepare the journal entries made by X company to record the above transactions
and show how these transactions will appear in the income statement for the year ended
December 31, 2015.
Solution:
a. The journal entry to record sales:
Dr Cr
b. The journal entry to record sales returns and allowances:
Dr Cr
Sales Returns and Allowances $2,000
c.
d. Income Statement Presentation

X Company
Partial Income Statement
For the year ended December 31,2015
Gross Sales Revenue $ 10,000
Less: Sales Returns and Allowances (2,000)
Net Sales $8,000
2. Accounting for Purchases and Inventories

‫ في الجزء‬...‫ بتاعها‬Merchandise‫في الجزء األول من الشابتر كنت بتتعلم إزاي الشركة بتاعتك بتسجل مبيعات ال‬
.‫ الخاص بها‬Inventory ‫ و ال‬Merchandise‫التاني من الشابتر هتتعلم إزاي الشركة بتسجل عملية شراء ال‬
‫ بتاعها‬Inventory ‫في طريقتين مهمين جداً الشركة بتستخدمهم في تسجيل ال‬
The Perpetual and Periodic Inventory
2.1. Perpetual Inventory System

‫ بتاعها بتحدد قيمة‬inventory ‫ الشركة ديما ً وباستمرار لما بتبيع من ال‬Perpetual Inventory System ‫في ال‬
.‫ وبتسجلها في حساباتها‬Cost of Goods Sold ‫ال‬
‫ الشركة في نهاية الفترة المحاسبية فقط بتحدد وبتسجل قيمة ال‬Periodic inventory system ‫اما بالنسبة لل‬
.Cost of Goods Sold
Accounting for Perpetual Inventory System
‫ وعلى المقابل حساب ال‬Cr ‫ بيتسجل في ال‬Payables ‫ أو ال‬Cash ‫ ال‬Inventory ‫لما الشركة بتشتري‬
.Dr ‫ بيزيد في ال‬Merchandise Inventory
• Recording purchase of inventory:
Dr Cr
Merchandise Inventory $XXX
Cash/Account Payables $XXX
‫أو‬Cash ‫ وال‬Cr ‫ بيقل في ال‬Merchandise Inventory ‫ حساب ال‬،Inventory ‫ولما تيجي الشركة تبيع من ال‬
.Dr ‫ بتزيد في ال‬Receivables ‫ال‬
‫ يكون‬Balance of the merchandise inventory ‫ ال‬Perpetual Inventory System ‫والزم ديما ً في ال‬
.Cost of Goods Available ‫ ال‬reflect‫بي‬
• Recording sale of inventory:
Dr Cr
Cash/Accounts receivable $XXX
Sales Revenue $XXX
Cost of Goods Sold $XXX
Merchandise Inventory $XXX
Example 6
X Company started the year with a beginning inventory of $10,000. The following
Transactions took place during the period:
Date Sale Cost of Goods Sold Purchase
10/1 $10,000 7,500
15/1 $20,000
20/1 15,000 12,500
25/1 5,000
Required:
a. Prepare the journal entries to record the above transactions under
perpetual inventory.
b. Prepare the merchandise inventory and cost of goods sold accounts
Solution:
a. Recording the transactions:
1. Sale of $10,000 with cost of $7,000 on 10/1
Dr Cr
Cash/Accounts receivable $10,000
Cost of Goods Sold $7,500
Merchandise Inventory $7,500
2. Purchase of $20,000 merchandise on 15/1
Dr Cr
Cash/Account Payables $20,000
3. Sale of $15,000 with $12,500 on 20/1

Dr Cr
Cost of Goods Sold $12,500
4. Purchase of $5,000 on 25/1

Dr Cr
b. Required Accounts:
Merchandise Inventory
1/1 Balance $10,000 10/1 $7,500
15/1 20,000 20/1 12,500
25/1 5,000
31/1 15,000
Cost of Goods Sold

10/1 $7,500
20/1 12,500
31/1 20,000
2.2. Periodic Inventory System
‫ واألسهل في تسجيل‬Perpetual ‫ ألنه أقل تكلفة من ال‬Periodic inventory system ‫شركات كتيرة بتستخدم ال‬
‫ فقط في نهاية كل فترة محاسبية (نهاية كل شهر أو كل سنة) بدالً من تسجيلها‬COGS ‫ وال‬Ending Inventory ‫ال‬
.‫يوميا ً باستمرار‬
Accounting for Periodic Inventory System
‫ ومش بتسجل ال‬COGS‫ مش بتسجل ال‬Periodic inventory system ‫في التسجيل المحاسبي في ال‬
.Perpetual ‫ زي ما عملت في ال‬Merchandise Inventory ‫ في حساب ال‬Purchases
Example 7
X Company started the year with a beginning inventory of $10,000. Ending inventory of
15,000. The following Transactions took place during the period:
Date Sale Cost of Goods Sold Purchase
10/1 $10,000 7,500
15/1 $20,000
20/1 15,000 12,500
25/1 5,000
Required:
a. Prepare the journal entries to record the above transactions under periodic
inventory.
b. Calculate the Cost of Goods Sold.
Solution
a. Recording the transactions
1. Sale of $10,000 with cost of $7,000 on 10/1

Dr Cr
2. Purchase of $20,000 merchandise on 15/1

Dr Cr
Purchases $20,000
3. Sale of $15,000 with $12,500 on 20/1
Dr Cr
4. Purchase of $5,000 on 25/1
Dr Cr
Purchases $5,000
b. To Calculate the Cost of Goods Sold.

Beginning Inventory $10,000
(+) Purchases 25,000
= Goods Available for Sale 35,000
(-) Ending Inventory (15,000)
=Cost of Goods Sold $20,000
2.3. Issues involved in recording purchases
.Buyer‫ لل‬Seller ‫ تتنقل من ال‬Ownership‫ الزم تتسجل لما ال‬Cost of Purchases ‫ال‬
، Purchases Returns and Allowances‫ ؛‬Purchases Discounts ‫ بتشمل‬Cost of Purchases ‫ال‬
Freight Charges
2.3.1. Recording purchases discounts
‫ أو بال‬Gross Method ‫ سواء بال‬Sales Discounts ‫ بتتسجل بنفس طريقة ال‬Purchases Discounts ‫ال‬
.Net Method
‫ بتتسجل بقيمتهم اإلجمالية بدون أي‬Accounts Payables ‫ وال‬Purchases ‫ ال‬Gross Method ‫في ال‬
.‫خصومات‬
‫ بقيمة‬Credit ‫ هيتسجل في ال‬Purchases Discount ‫ حساب ال‬.Discount‫لو الشركة سددت في خالل فترة ال‬
.Dr ‫ هتقل وهتتسجل بقيمتهم اإلجمالية في ال‬A/P ‫ بقيمته بعد الخصم وال‬Cr‫ هيقل في ال‬Cash ‫ وال‬،‫الخصم‬
‫ هتقل بقيمتها‬A/P ‫ بقيمته اإلجمالية وال‬Cr‫ هيقل في ال‬Cash ‫ ال‬.Discount ‫لو الشركة سددت بعد فترة ال‬
.Dr ‫اإلجمالية في ال‬
Example 9
On March 1, X Company purchased merchandise costing $10,000 on account with the terms
2/10, n/30.
Required: Prepare the journal entries under periodic system using the gross method, to:
a. Record the above transaction.
b. Record the payment under the following two independent cases:
Solution:
c. The journal entry to record the purchase transaction (on credit) on March 1:
Dr Cr
Purchase $10,000
Accounts Payable $10,000
d. Recording Payment:
Dr Cr
Accounts Payable 10,000
Purchase Discount 200
Cash $9,800
Dr Cr
Accounts Payable $10,000
Cash $10,000
2.3.2. Purchases Returns and allowances
Sales Returns ‫ مشابه للتسجيل المحاسبي لل‬Purchases Returns and allowances ‫التسجيل المحاسبي لل‬
and allowances
1. Recording Purchases
Dr Cr
Purchases $XXX
Accounts Payable/Cash $XXX
2. Recording Purchases Returns and allowances
Dr Cr
Accounts Payable/Cash $XXX
Purchases Returns and allowances $XXX
2.3.3. Freight Costs (Transportation)
‫ لو الشركة بتستخدم‬Terms of sale‫ وده بيعتمد على ال‬Freight Costs ‫أول خطوة الزم تحدد مين اللي هيتحمل ال‬
‫ لحد‬Merchandise‫ فا ده معناه ان البائع ملزم انه يوصل ال‬FOB (Free on Board) – Destination ‫ال‬
.Freight ‫ هو اللي بيتحمل تكلفة ال‬Seller‫ بمعنى أن ال‬،‫المشتري‬
‫ فا ده معناه أن انا كمشتري اللي بروح اجيب‬FOB- Shipping Point ‫أما لو الشركة بتستخدم ال‬
.Freight Costs ‫ هو اللي بيتحمل ال‬Buyer ‫ بمعنى أن ال‬..Seller ‫ من ال‬Merchandise‫ال‬
COGS ‫ ومش بتتسجل لما احسب ال‬Selling Expenses ‫ بتعتبر‬Seller ‫ لما بيدفعها ال‬Freight Costs‫ال‬
‫ وبتضاف على‬Cost of Inventory‫ بتعتبر تكلفة جزء من ال‬Freight Costs‫ هو اللي بيدفع ال‬Buyer ‫أما لما ال‬
.COGS‫ال‬
Example 10 (FOB Shipping Point)

If Sauk Stereo (the buyer) pays Public Carrier Co. $150 for freight charges on May 6,
Required: Prepare the entry on Sauk Stereo’s books of freight on goods purchased.
Solution:
To record payment of freight on goods purchased on May 6.
Dr Cr
Merchandise Inventory $150
Cash $150
Example 11 (FOB Destination)
PW Audio Supply (the seller) pays Public Carrier Co. $150 for freight charges,
Required: Prepare the entry on PW Audio Supply of freight on goods sold.
Solution:
To record payment of freight on goods sold
Dr Cr
Selling Expenses $150
Cash $150
2.4. Multiple-step Income statement (vs) Single-Step Income Statement

Single-Step Income ‫ بيكون فيها تفاصيل وبيانات أكتر عن ال‬Multiple-step Income statement‫ال‬
.Statement
Multiple-step Income statement
Single-step Income statement
Example 12
a. On November 2, Z-Mart purchased $1,200 of merchandise inventory on account, credit
terms are 2/10, n/30
b. On November 12, Z-Mart paid the amount due on the purchase of November 2.
c. On November 15, Z-Mart (buyer) issues a $300 debit memorandum for an allowance
from Trex for defective merchandise.
d. Z-Mart purchased merchandise on terms of FOB shipping point. The transportation
charge is $75.
e. On November 3, Z-Mart sold $2,400 of merchandise on credit. The merchandise has a
cost basis to Z-Mart of $1,600.
f. Recall Z-Mart’s sale for $2,400 that had a cost of $1,600. Assume the customer returns
part of the merchandise. The returned items sell for $800 and cost $600.
g. Z-Mart received the full amount less 3% discount.
Required: Prepare the Journal entry.

Solution:
a. On November 2, Z-Mart purchased $1,200 of merchandise inventory on account, credit
terms are 2/10, n/30
Periodic method Perpetual method
Dr Cr Dr Cr
Purchases 1,200 Merchandise inventory 1,200
Accounts Payables 1,200 Accounts Payable 1,200
b. On November 12, Z-Mart paid the amount due on the purchase of November 2.
Dr Cr Dr Cr
Accounts Payable 1,200 Accounts Payable 1,200
Purchase Discounts 24 Merchandise Inventory 24
Cash 1,176 Cash 1,176
c. On November 15, Z-Mart (buyer) issues a $300 debit memorandum for an allowance from
Trex for defective merchandise.
Dr Cr Dr Cr
Accounts Payable 300 Accounts Payable 300
Purchase returns and allowances 300 Merchandise Inventory 300
d. Z-Mart purchased merchandise on terms of FOB shipping point. The transportation charge
is $75.
Dr Cr Dr Cr
Transportation-in 75 Merchandise Inventory 75
Cash 75 Cash 75
e. On November 3, Z-Mart sold $2,400 of merchandise on credit. The merchandise has a cost
basis to Z-Mart of $1,600
Dr Cr Dr Cr
Accounts Receivable 2,400 Accounts Receivable 2,400
Sales 2,400 Sales 2,400
Cost of goods sold 1,600
Merchandise inventory 1,600
f. Recall Z-Mart’s sale for $2,400 that had a cost of $1,600. Assume the customer returns part
of the merchandise. The returned items sell for $800 and cost $600.
Dr Cr Dr Cr
Sales returns and allowances 800 Sales returns and allowances 800
Account receivables 800 Account receivables 800
Merchandise inventory 600
Cost of goods sold 600
g. Z-Mart received the full amount less 3% discount.
Full Amount = 2400 - 800 = 1,600
Dr Cr Dr Cr
Cash 1,552 Cash 1,552
Sales Discount (1600x3%) 48 Sales Discount (1600x3%) 48
Accounts Receivables 1,600 Accounts Receivables 1,600
Perpetual Periodic
Transaction Accounts Dr Cr Accounts Dr Cr
Selling Cash/ A.R xxx Cash/ A.R xxx
Merchandise on Sales Revenue xxx Sales Revenue xxx
cash/credit COGS xxx
Merchandise Inventory xxx
Payment Cash xxx Cash xxx
in sales discount Sale Discount xxx Sale Discount xxx
period A.R xxx A.R xxx
Payment Cash xxx Cash xxx
after sales A.R xxx A.R xxx
discount period
Sales Returns Sales Returns xxx Sales Returns xxx

and allowances Cash/A.R xxx Cash/A.R xxx
Merchandise Inventory xxx
COGS xxx
Freight Costs Merchandise Inventory xxx Transportation In xxx
Shipping Point Cash xxx Cash xxx
(Buyer)
Freight Costs Selling Expense (Transportation) xxx Selling Expense (Transportation) xxx
Cash xxx Cash xxx
FOB
Destination
(Seller)
Purchase Merchandise Inventory xxx Purchases xxx
Merchandise on Cash/ A.P xxx Cash/ A.P xxx
cash/credit
Payment A.P xxx A.P xxx
in purchase Merchandise Inventory xxx Purchase Discount xxx
discount period Cash xxx Cash xxx
Payment A.P xxx A.P xxx
after purchase Cash xxx Cash xxx
discount period
Purchase Cash/ A.P xxx Cash/ A.P xxx
Returns and Merchandise Inventory xxx Purchase Returns xxx
allowances
Problem 1
Y company offers 10% trade discount on its product. The product has a list price $200/unit.
The company sold 100 units.
Required: Record the above transaction.

Solution:
Accounts & Explanation Dr Cr
Cash / Account Receivables (100 x 200 x 90%) $18,000
(Sale of Merchandise Inventory with trade discount)
Problem 2
On August 10, X company sold merchandise to Y company for $100,000 with the terms
2/10,n/30.
Required:
Prepare the journal entries to record this transaction, and the payment of the amount due
under the following two independent cases using the gross method:
a. Y's payment is made on August 18.
b. Y's payment is made on August 30.
Solution:
(Sale of Merchandise Inventory)
Cash (100,000 – 2,000) 98,000
Sales Discount 2% x 100,000 2,000
Account Receivables 100,000
(Y's payment is made on August 18)
Cash 100,000
(Y's payment is made on August 30)
Problem 3
S Company started the year with a beginning inventory of $300,000. The following
transactions took place during the period:
Date Sale Cost of Goods
Cost of goods sold
purchased
$50,000 $20,000
10/1 200,000 80,000
15/1 $70,000
20/1 30,000
25/1
Required:
a. Prepare journal entries to record the above transactions using perpetual inventory system.
b. Prepare the Merchandise Inventory and Cost of Goods Sold accounts.
Solution:
a. Journal Entries
Date Accounts & Explanation Dr Cr
10/1 Cash / Account Receivable $50,000
Cost of goods sold $20,000
15/1 Cash / Account Receivable 200,000
Sales Revenue 200,000
Merchandise Inventory 80,000
20/1 Merchandise Inventory $70,000
25/1 Merchandise Inventory 30,000
Cash/Account Payables 30,000
b. Required Accounts:
1/1 Beg. Balance $300,000 10/1 20,000
20/1 70,000 15/1 80,000
25/1 30,000
31/1 End. Balance $300,000
Cost of Goods Sold

10/1 $20,000
15/1 80,000
31/1 100,000
Problem 4
Using the same data of Problem 3, assume that S company uses the periodic inventory system.
Required:
a. Prepare the journal entries to record the transactions.
b. Prepare the Merchandise Inventory and the Purchases accounts.
Solution:
a. Journal Entries
10/1 Cash / Account Receivable $50,000
15/1 Cash / Account Receivable 200,000
20/1 Purchase $70,000
25/1 Purchase 30,000
Cash/Account Payables 30,000
a. Required Accounts:
1/1 Beg. Balance $300,000
Purchases
20/1 $70,000
25/1 30,000
31/1 100,000
Problem 5
K company purchased merchandise costing $500,000 on account from L company, the terms
were 2/10, n/30.
Required:
a. Record the purchases transactions in K books.
b. Record the payment of the payable, under the gross method assuming:
1. K company paid within the discount period.
2.K company paid after the discount period.
Solution:
Purchase 500,000
(Purchase of Merchandise)
Purchase Discount (500,000 x 2%) 10,000
Cash (500,000 – 10,000) 490,000
(Payment within discount period)
Cash 500,000
(Payment after discount period)
Problem 6
A Company uses perpetual inventory system. The following transactions occurred
during Jan. 2015:
January 1: Sold merchandise costing $15,000 for $20,000 in cash to F.
January 5: Sold merchandise costing $25,000 for $30,000 on credit to B Terms 2/10, n/30.
January 7: Sold merchandise cost $15,000 for $18,000 on credit to C Terms FOB-shipping
point.
January 10: Received back merchandise cost $4,000 and sale value of $4,500 from C.
January 15: Received the amount due from B.
January 18: Sold merchandise cost $30,000 for $32,000 to D on credit Terms n/30.
January 20: Received $4,000 interest revenue on saving account in cash.
January 25: Collected the amount due from D.
January 30: Received the amount due from C in cash.
Required: Record the above transactions.

Solutions:
Jan 1 Cash 20,000
Jan 5 Account Receivable 30,000
Jan 10 Sales Returns and allowance 4,500
Account Receivable 4,500
Jan 15 Cash (30,000-600) 29,400
Sale Discount (2% x 30,000) 600
Jan 20 Cash 4,000
Interest Revenue 4,000
Jan 25 Cash 32,000
Jan 30 Cash 13,500
Account Receivable (18,000 – 4,500) 13,500
Problem 7
A Company uses the perpetual inventory system and gross Method. The following
transactions took place during March 2004.
March 1: Purchased merchandise for $20,000 in cash.
March 4: Purchased merchandise for $25,000 on credit terms 5/15, n/30, FOB Shipping
point
March 5: Paid $400 transportation expense.
March 6: Returned merchandise $5,000 from purchases on March 4.
March 8: Sold merchandise $10,000 in cash. Cost $9,500.
March 15: Sold merchandise $18,000 on credit. Terms 4/15, n/30, FOB destination. Cost
$16,000.
March 16: Paid the amount due to suppliers.
March 17: Paid $300 transportation expense.
March 20: Received back merchandise for $4,000. Cost $3,500.
March 31: Received the amount due from customers in cash.
Required:
a. Prepare journal entries to record the above Transactions.
b. Prepare ledger accounts for Inventory and cost of goods sold.
Solutions:
a. Journal Entries
March 1 Merchandise Inventory 20,000
Cash 20,000
March 4 Merchandise Inventory 25,000
March 5 Merchandise Inventory 400
Cash 400
March 6 Accounts Payable 5,000
March 8 Cash 10,000
March 15 Account Receivable 18,000
March 16 Accounts Payable (25,000 – 5,000) 20,000
Merchandise Inventory (5% x 20,000) 1,000
Cash (20,000 – 1,000) 19,000
March 17 Transportation Expense 300
Cash 300
March 20 Sales returns and allowance 4,000
March 31 Cash 14,000
Account Receivable (18,000 - 4,000) 14,000
b. Ledger Accounts
1/3 Beg. Balance 20,000 6/3 5,000
4/3 25,000 8/3 9,500
5/3 400 15/3 16,000
20/3 3,500 16/3 1,000
31/3 End. Balance 17,400
Cost of Goods Sold

8/3 9,500 20/3 3,500
15/3 16,000
22,000
Problem 8
X Company uses the periodic inventory system and gross method. The following
transactions took place during its first year of operations:
January 1: Purchased merchandise for $30,000 in cash.
January 3: Purchased merchandise for $50.000 on credit. Terms 2/15, n/30, FOB Shipping
point.
January 5: Paid $200 transportation expense.
January 6: Returned merchandise $10,000 from purchases on January 3.
January 8: Sold merchandise $70,000 in cash.
January 15: Sold merchandise $45,000 on credit. Terms 5/10, n/30, FOB destination.
January 16: Paid the amount due to suppliers.
January 17: Paid $400 transportation expense.
January 20: Received back merchandise for $15,000.
January 31: Received the amount due from customers in Cash.
Required:
a. Prepare journal entries to record the above transactions.
b. Compute the following:
1. Net Sales
2. Net purchases
3. Cost of goods purchased
4. Cost of goods sold if the cost of ending inventory is estimated to be $25,000.
5. Gross profit.
a. Journal Entries
Jan 1 Purchase 30,000
Cash 30,000
Jan 3 Purchase 50,000
Account Payables 50,000
Jan 5 Transportation In 200
Cash 200
Jan 6 Accounts Payables 10,000
Purchase Returns and allowances 10,000
Jan 8 Cash 70,000
Sales Revenues 70,000
Jan 15 Accounts Receivables 45,000
Sales Revenues 45,000
Jan 16 Accounts Payable (50,000 – 10,000) 40,000
Purchase Discount (40,000 x 2%) 800
Cash (40,000-800) 39,200
Jan 17 Transportation Expenses Out 400
Cash 400
Jan 20 Sales Returns and allowances 15,000
Jan 31 Cash 30,000
Account Receivables (45,000 – 15,000) 30,000
b. Computations:
1. Net Sales:
Gross Sales Revenue $ 70,000
45,000
Less: Sales Returns and Allowances (15,000)
Less: Sales Discounts (0)
Net Sales $100,000
2. Net purchases = Purchases – Purchases Returns = (30,000 + 50,000) - 10,000 = $70,000

3. Cost of goods purchased = 30,000 + 50,000 = 80,000
4. Cost of goods sold = Beginning balance + Net Purchases – Ending Inventory = 0 +
$70,000 – 25,000= $45,000
5. Gross profit = Net sales – Cost of goods sold = 100,000 – 45,000 = $55,000
Choose the best answer for each of the following questions:

1. AG Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the net method to record sales made on credit, how much should be
recorded as revenue?
a) $ 9,800 b) $ 9,900
c) $10,000 d) $10,100
$10,000 × (1 – .01) = $9,900.
company uses the gross method to record sales made on credit, what is/are the debit(s)
in the journal entry to record the sale?
a) Debit Accounts Receivable for b) Debit Accounts Receivable for $9,900
$9,900. and Sales Discounts for $100.
c) Debit Accounts Receivable for d) Debit Accounts Receivable for $10,000
$10,000 × 100% = $10,000.
company uses the net method to record sales made on credit, whet is/are the debit(s) in
the journal entry to record the sale?
a) Debit Accounts Receivable for b) Debit Accounts Receivable for $9,800
c) Debit Accounts Receivable for d) Debit Accounts Receivable for $10,000
$10,000 × (1 – .02) = $9,800.
4. A company had sales of $695,000 and cost of goods sold of $278,000. Its gross margin
equals:
a) $(417,000) b) $695,000
c) $278,000 d) $417,000
e) $973,000
Gross Margin= Sales – Cost of goods sold = $695,000 − $278,000 = $417,000
5. A company purchased $1,800 of merchandise on December 5. On December 7, it
returned $200 worth of merchandise. On December 8. it paid the balance in full,
taking a 2% discount. The amount of the cash paid on December 8 equals:
a) $200 b) $1,564
c) $1,568 d) $1,600
e) $1,800
($1,800 – 200) x 98%=$1,568
6. A company purchased $2,000 of merchandise on May 4. On May 5, it returned $500
worth of merchandise. On May 9, it paid the balance in full, taking a 1% discount.
The amount of the cash paid on May 9 equals:
a) $40 b) $1,485
c) $1,500 d) $2,000
e) $1,980
(2,000 – 500) x 99% = $1,485
7. On October 1, W Company sold merchandise in the amount of $5,800 to L Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. W uses the
perpetual inventory system. L pays the invoice on October 8 and takes the appropriate
discount. The journal entry that W makes on October 8 is:
Answer: e
8. On October 1, C Company sold merchandise in the amount of $5,800 to T Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. C uses the periodic
inventory system. On October 4 T returns some of the merchandise. The selling price
of the merchandise is $500, and the cost of the merchandise returned is $350. T pays
the invoice on October 8 and takes the appropriate discount. The journal entry that C
makes on October 8 is:
Answer: C
9. When preparing an unadjusted trial balance using a periodic inventory system, the
amount shown for Merchandise Inventory is:
a) The ending inventory amount. b) The beginning inventory amount.
c) Equal to the cost of goods sold. d) Equal to the cost of goods purchased.
e) Equal to the gross profit.
10. An account used in the periodic inventory system that is not used in the perpetual
inventory system is:
a) Merchandise Inventory b) Sales
c) Sales Returns and Allowances d) Accounts Payable
e) Purchases
11. A company has net sales and cost of goods sold of $752,000 and $543,000, respectively.
Its net income is $17,530. The company's gross margin and operating expenses are:
a) $209,000; $191,470 b) $191,470; $209,000
c) $525,470; $227,000 d) $227,000; $525,470
e) $734,000; $191,470
12. Expenses that support the overall operations of a business and include the expenses
relating to accounting, human resource management, and financial management are
called:
a) Cost of goods sold. b) Selling expenses.
c) Purchasing expenses. d) General and administrative expenses.
e) Non-operating activities.
13. A debit to Sales Returns and Allowances and a credit to Accounts Receivable:
a) Reflects an increase in amount due b) Recognizes that a customer returned
from a customer. merchandise and/or received an
allowance.
c) Requires a debit memorandum to d) Is recorded when a customer takes a
recognize the customer's return. discount
e) All of these.
14. H Company sells merchandise on account for $2.000 to J Company with credit terms
of 2/10, n/30. J Company returns $400 of merchandise that was damaged, along with a
check to settle the account within the discount period. What is the amount of the
check?
a) $1,960 b) $1,968
c) $1,600 d) $1,568
(2000 – 400) x %98 = $1,568
15. Which of the following would not be classified as a contra account?
a) Sales b) Sales Returns and Allowances
c) Accumulated Depreciation d) Sales Discounts
16. The operating cycle of a merchandising company:
a) Begins with the purchase of b) Ends with the collection of cash from the
merchandise. sale of merchandise.
c) Can vary in length among different d) Sometimes involves accounts receivable.
merchandising companies. e) All of these.
Use the following information for questions 17–19
During 2008, S Enterprise generated revenues of $60,000. The company's expenses
were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss
on the sale of equipment of $2,000.
17. S's gross profit is
a) $60,000 b) $30,000
c) $18,000 d) $16,000
revenues - cost of goods sold= $60,000 - $30,000 = $30,000
18. S's income from operations is
a) $60,000 b) $30,000
c) $18,000 d) $12,000
revenues - cost of goods sold - operating expenses = $60,000 – 30,000 – 12,000 = $18,000
19. S's net income is
a) $60,000 b) $30,000
c) $18,000 d) $16,000
revenues - cost of goods sold - operating expenses - loss on the sale of equipment = $60,000
– 30,000 – 12,000 – 2,000 = 16,000
20. Z company's current assets $50,000, and Property. Plant and Equipment $150,000. Its
current liabilities $30,000 and long-term liabilities $70,000. Z capital is $100,000. The
working capital of Z company is:
a) $100,000 b) $170,000
c) $130,000 d) $20,000
The working capital = Current Assets – Current Liabilities = 50,000 – 30,000 = 20,000

Accounting 2 DR Selim Chapter 1

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Accounting II

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For Course Reservations

+Merchandise Inventory +Bonds Payable +Sales -Amortization

-Allowance for Doubtful +Unearned Service Revenue -Sales -Income Tax

Discounts Dr↑ -Insurance

Accounting for Merchandising Operations

Simple Income Statement

1. Accounting for Sale Merchandise

Example 2 (To record Credit Sale)

Required: Prepare the journal entries to record the above event.

1.2. Sale Discount (Cash Discount)

1.2.1. The Gross Method of Recording Sale Discount

2) Payment is made on March 21.

1.3. Sales Returns and Allowances

d. Income Statement Presentation

2. Accounting for Purchases and Inventories

2.1. Perpetual Inventory System

3. Sale of $15,000 with $12,500 on 20/1

4. Purchase of $5,000 on 25/1

Cost of Goods Sold

2.2. Periodic Inventory System

Accounting for Periodic Inventory System

1. Sale of $10,000 with cost of $7,000 on 10/1

2. Purchase of $20,000 merchandise on 15/1

b. To Calculate the Cost of Goods Sold.

2.3.1. Recording purchases discounts

2.3.3. Freight Costs (Transportation)

Example 10 (FOB Shipping Point)

Required: Prepare the entry on PW Audio Supply of freight on goods sold.

2.4. Multiple-step Income statement (vs) Single-Step Income Statement

Multiple-step Income statement

Required: Prepare the Journal entry.

Sales Returns Sales Returns xxx Sales Returns xxx

Required: Record the above transaction.

Cost of Goods Sold

Required: Record the above transactions.

Cost of Goods Sold

2. Net purchases = Purchases – Purchases Returns = (30,000 + 50,000) - 10,000 = $70,000

Choose the best answer for each of the following questions:

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