Let us go on with the illustration and expand Dav's Books operations to the next (20X7) accounting period. The following transactions took place:

1. On May 14, the company purchased $5,000 of goods (inventory) on account. The seller delivered the goods at their expense.
2. Some goods delivered to Dav's Books were damaged; thus, Dav's Books returned $300 of them to the seller (May 16).
3. On September 18, the company made cash payment on the balance of the accounts payable. In addition, the bookstore would receive a 2% cash discount from the seller if Dav's Books made the payment in two weeks. As the payment was made within two weeks, Dav's Books took advantage of the 2% discount.
4. On June 12, the company sold goods costing $2,000 for $4,000 on account.
5. Dav's Books incurred $400 of transportation expenses to deliver the goods to the customers. The expense was paid in cash on June 12.
6. Due to an error in filling out the purchase order in Event No. 6 and respectively shipping some goods not ordered, the customers sent back and the bookstore accepted a return of $500 of goods. The cost of the goods was $250.
7. On June 15, the company provided the buyer with a 2% cash discount if the buyer pays within two weeks. The buyer met the requirement (buyer paid within two weeks).
8. On September 12, the company collected the balance due on accounts receivable.

Let us look at each of the transactions, record them in the general journal, transfer the data to T-accounts, and prepare the financial statements. All effects of the transactions on the accounting equation are shown in the table below.

Illustration 9: Effects of 20X7 events of the accounting equation