Q14SE - Horngren'S Financial And Managerial Accounting

Question

Consider the following transactions for Garman Packing Supplies:

Apr. 10 Garman Packing Supplies buys \(175,000 worth of merchandise inventory on account with credit terms of 1/10, n/30.

        12 Garman returns \)15,200 of the merchandise to the vendor due to damage during shipment.

        19 Garman paid the amount due, less the return and discount.

Requirements

1. Journalize the purchase transactions assuming Garman Packing Supplies uses the periodic inventory system. Explanations are not required. 

2. What is the amount of net purchases?

Step-by-Step Solution

Answer

The net purchase of the company is$158,202.

Step 1: Meaning of Periodic Inventory System

There are two inventory systems available for the business entities in accounting, which they can use according to their business structure. A periodic inventory system requires less effort and skills because it updates inventory accounts periodically.  

Step 2: Preparation of journal entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
Apr 10	Purchases	175,000
	Accounts payable		175,000
Apr 12	Accounts payable	15,200
	Purchase return		15,200
Apr 19	Accounts payable (175000-15200)	159,800
	Cash		158,202
	Discount received (159800*1%)		1,598

Step 3: Computation of net purchases

Particulars	Amounts ($)
Purchases	175,000
Less: Purchase returns	(15,200)
Less: Discount	(1,598)
Net purchases	158,202