Prepare journal entries to record the following transactions on Bernila Company's books using...

Question:

Prepare journal entries to record the following transactions on Bernila Company's books using perceptual inventory system.

(i) On March 2 Horst company sold {eq}\$800,000 {/eq} of merchandise to Bernila Company terms {eq}2/10 {/eq}, {eq}\mathrm{n}/30 {/eq}. The cost of the merchandise sold was {eq}\$540,000 {/eq}.

(ii) On March 6 Bernila Company returned {eq}\$140,000 {/eq} of merchandise purchased. The cost of merchandise returned was {eq}\$94,000 {/eq}.

(iii) On March 12 Horst Company received the balance due from Bernila Company.

Prepare Perpetual Inventory Accounting Entries for Inventory Transactions:

Companies have two accounting choices with regards to how they can maintain their inventory records. One choice is the perpetual inventory method, whereby every time a product is sold, the cost of the sale is recorded at the same time. The second choice is periodic, whereby the company takes inventory at the end of an accounting period and records at that time the cost of sales for every sales transaction at one time when reconciling the physical inventory with the inventory amount on the books.

Answer and Explanation: 1

Prepare journal entries to record the following transactions on Bernila Company's books using perceptual inventory system.

(i)

Debit Accounts Receivable $800,000

Credit Sales Revenues $800,000

To record sales of merchandise to Bernila Company, terms: 2/10, n/30.

Debit Cost of Goods Sold Expense $540,000

Credit Inventory $540,000

To record cost of the sale to Bernila Company.


(ii)

Debit Sales Returns and Allowances $140,000

Credit Accounts Receivable $140,000

To record return of merchandise by Bernila Company from the March 2 sale.

Debit Inventory $94,000

Credit Cost of Goods Sold Expense $94,000

To record cost of merchandise returned by Bernila Company


(iii)

The balance due from Bernila Company on this date was ($800,000 - $140,000 = $660,000). Bernila Company paid the invoice on time in order to receive the 2/10 discount terms. Therefore, the amount paid by Bernila Company was $660,000 * 98% = $646,800. Therefore, the sales discount was $660,000 - $646,800 = $13,200.

Debit Sales Discount $13,200

Debit Cash $646,800

Credit Accounts Receivable $660,000

To record payment by Bernila of $660,000, less the early payment discount of 2% they were eligible for by paying within 10 days of the March 2 sale.



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Recording Sales Using the Perpetual System

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Chapter 6 / Lesson 8
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Sales can be recorded in two inventory systems: periodic, where inventory is updated in chronological increments, or perpetual, where inventory is updated for each individual sale. Identify the benefits to using these systems and review examples of how each records a business's sales.


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