FINAN+MAN ACCT (LL)W/ACCESS+PROCTORIO
FINAN+MAN ACCT (LL)W/ACCESS+PROCTORIO
9th Edition
ISBN: 9781265172237
Author: Wild
Publisher: MCG
Question
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Chapter 7, Problem 1QS
To determine

Journalization: It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of journal entry: The rules for journal entry are defined by 5 accounting components,

  • Assets: Increase in asset should be debit and decrease should be credit.
  • Liabilities: Increase in liabilities should be credit and decrease should be debit.
  • Equity: Increase in Equity should be credit and decrease should be debit.
  • Expense: Increase in expense should be debit and decrease should be credit.
  • Revenue: Increase in revenue should be credit and decrease should be debit.

Credit card: It refers to the card made of plastic and issued by a bank. It provides an individual to buy goods and services on credit when they have shortage of cash.

Perpetual inventory system: It refers to the system of recording transaction related to inventories at the time of their occurrence. Each sale and purchase is recorded at the time they occurred.

To prepare: Journal entries for the given credit card sales transactions.

Expert Solution & Answer
Check Mark

Explanation of Solution

1.

Sold $20,000 of merchandise, which cost $15,000, on MasterCard credit cards. MasterCard charges a 5% fee.

    Date
    Account Title and Explanation
    Post ref
    Debit($)
    Credit($)

    Cash

    19,000


    Credit Card Expense

    1,000


    Sales


    20,000

    (Being sales of $20,000 is recorded payment for which is made with MasterCard credit card )



  • Since payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
  • Since payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
  • Since sales of merchandise have been made and sales is a revenue account, it is credited when it is increased.
    Date
    Account Title and Explanation
    Post ref
    Debit($)
    Credit($)

    Cost of Goods Sold

    15,000


    Merchandise Inventory


    15,000

    (Being cost of goods sold is recorded )



  • Since the cost of merchandise sold is $15,000 and company is using perpetual inventory system
  • Cost of Goods Sold account is debited by crediting merchandise inventory accounts as it is an asset account and it has decreased.

2.

Sold, $5,000 of merchandise, which cost $3,000, on an assortment of bank credit cards. These cards charge a 4% fee.

    Date
    Account Title and Explanation
    Post ref
    Debit($)
    Credit($)

    Cash

    4,800


    Credit Card Expense

    200


    Sales


    5,000

    (Being sales of $5,000 is recorded payment for which is made with bank credit cards )



  • Since payment with credit cards includes immediately recognition of cash to the company and cash is an asset account, it is debited when it is increased.
  • Since payment with credit card includes some charges for the company and it is an expense account, it is debited when it is increased.
  • Since sales of merchandise have been made and sales is a revenue account, it is credited when it is increased.
    Date
    Account Title and Explanation
    Post ref
    Debit($)
    Credit($)

    Cost of Goods Sold

    3,000


    Merchandise Inventory


    3,000

    (Being cost of goods sold is recorded )



  • Since the cost of merchandise sold is $3,000 and company is using perpetual inventory system.
  • Cost of Goods Sold account is debited by crediting merchandise inventory accounts as it is an asset account and it has decreased.

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