6. Second illustration of accounting for inventory (period 2)

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 May 18, the company made a cash payment to settle the full balance due to the vendor from Event No. 1. The vendor provided a 2% cash discount to the bookstore because Dav's Books made the payment with two weeks after the purchase.
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 customer from Event No. 4. 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 customer sent back, and the bookstore accepted, some goods with the selling price of \$500. The original cost of the goods was \$250.
7. On June 15, the bookstore informed the customer from Event No. 4 that the customer would received a 2% cash discount if the payment was made within two weeks after the purchase.
8. On June 16, the customer from Even No. 4 paid the balance due for the goods delivered by the bookstore.

6.1. Effects of transactions for the second illustration of accounting for inventory

Let us review these transactions, record them in the general journal, transfer the data to T-accounts, and prepare the financial statements. The effects of these transactions on the accounting equation are shown in the table below:

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

 Assets = Liab. + Equity Cash + Invent. + Accts Rec. = Accts Pay. + Contr. Cap. + Ret. Earn. Beginning Balances \$9,600 \$5,200 \$     0 \$     0 \$12,000 \$2,800 1) Inventory purchase + 5,000 + 5,000 2) Goods return (300) (300) 3a) Cash discount on goods (94) (94) 3b) Cash payment (4,606) (4,606) 4a) Revenue recognition + 4,000 + 4,000 4b) COGS recognition (2,000) (2,000) 5) Transp.-out expense (400) (400) 6a) Revenue adjustment (500) (500) 6b) COGS adjustment + 250 + 250 7) Cash discount provided (70) (70) 8) Cash collection + 3,430 (3,430) Ending Balances \$8,024 + \$8,056 + \$     0 = \$     0 + \$12,000 + \$4,080
Not a member?