QA5C-3SE - Horngren'S Financial And Managerial Accounting

Question

Question: Suppose Muddyriver.com sells 2,000 books on account for \(19 each (cost of these books is \)22,800), credit terms 1/20, n/45 on October 10, to The Salem Store. The Salem Store paid the balance to Muddyriver.com on October 22.

Requirements 

1. Journalize the Salem Store’s October transactions. 

2. Journalize Muddyriver.com’s October transactions. Assume Muddyriver.com uses the gross method to record sales revenue.

Step-by-Step Solution

Answer

Answer

The total of debits and credits for Salem Store is $76,000.

The total of debits and credits for Muddyriver is $98,800.

Step 1: Meaning of Journal Entries

In accounting, journal entries are one of the processes of recording and maintaining the financial transactions of a business entity. It records the business transactions chronologically and helps the business to prepare ledgers and trial balances

Step 2: Preparation of journal entries for Salem Store

Date	Accounts and Explanation	Debit ($)	Credit ($)
Oct 10	Merchandise inventory	38,000
	Accounts payable		38,000
	(To record the purchase)
Oct 22	Accounts payable	38,000
	Cash		37,620
	Merchandise inventory		380
	(To record the payment)

Step 3: Preparation of journal entries for Muddyriver.com

Date	Accounts and Explanation	Debit ($)	Credit ($)
Oct 10	Accounts receivable	38,000
	Sales revenue		38,000
	(To record the sales)
Oct 10	Cost of goods sold	22,800
	Merchandise inventory		22,800
	(To record the cost of goods sold)
Oct 22	Cash	37,620
	Sales discount (38000*1%)	380
	Accounts receivable		38,000
	(To record the receipt of payment)