 Hello in this lecture we're going to continue on with some shorter test type problems that could be in the format of multiple choice problems. So here is the next one has on September 12th the company sold merchandise in the amount of 3952 J company with credit terms 210 and 30 so 2% of paid in 10 days otherwise it's due in 30 days. The cost of the items sold is 2725. V uses the perpetual inventory system on September 14th. J returns some of the merchandise the selling price of the merchandise is 340 the cost of the merchandise is 240. Okay J pays the invoice on September 18th and takes the appropriate discount the journal entry that V makes on September 18th. Okay so we basically got to get to this last journal entry over here and I'm going to put over on this side basically what we are tracking at this point is accounts receivable. So we're going to try to see what the accounts receivable is at the end and then we'll have to make that adjustment in accounts receivable. So I'm going to have our T account for accounts receivable because the ultimate payment will be what is owed less the discount. Then I'm going to go ahead and go through our journal entries and this might be a bit longer way of doing it but it'll give us the bigger picture on how you know this is we're going to get to where we want to get. So on September 1st the V company sold merchandise in the amount of 3950. So if we sold merchandise what would happen we would I'll put it up here we would debit accounts receivable for 3950 and we would credit sales or income or revenue I'm going to make mine a negative for the credit column here. What also would happen we could put it in a separate journal entry or we can keep it on the same journal entry I'm just going to keep it up here costs of goods sold would then be affected and that would be for the 2725 and we would have the fact that the inventory is going down inventory is going down by the 2725. So these are the two you can think of them as two separate journal entries basically they happen at the same time this is the sales half this is the fact that the inventory is going down and the expenses of cost goods sold are going up. What happens to our T accounts right here well we can see that accounts receivable is here and that's going to increase the receivables and if we sum these up this is the sum of these it's going to equal the sum of these and of course the debits are beating the credits at this point and then we're saying at September 14th Jay returned some of the merchandise the selling price is 340 so the merchandise came back returned it basically we reverse this transactions for the most part with a bit of it one exception basically so if we reverse this first half of it we would have to debit sales but we don't usually debit sales we debit what we call the allowance for sales returns and allowance so that's like a contra sales account account that we put in place just for this type of occasion because we don't like to reduce sales everything else is basically going to be an exact reversal meaning the credit's going to go to accounts receivable because they don't owe it anymore then we have to reverse this half meaning we're going to debit inventory the inventory came back and the inventory the amount of the inventory that came back was 240 and we're going to credit costs of goods sold for the 240 and in terms of our accounts receivable then we have a reduction here of this 240 in terms of our t-account so of course the debits are still beating the credits and now by that 3610 so if I take that 3610 and we're going to take that multiply it times the discount rate if it was paid within the discount rate we're going to say the discount is 0.02 that means that I'm going to put decimals on that home tab numbers add decimals going to go ahead and underline this multiply that out we're going to say this equals the 3610 that is owed after the return times the discount means that we have a discount of 72 i'm going to add some decimals 20 72 20 so our journal entry then is going to be something like this we are going to say once cash is received we're going to get cash and it would have been for the 3610 but we got a 72 discount and there's a couple different ways I mean I could put this number minus this number it's also the fact that if they owed us 3610 and we've got a 2% discount then we were paid 98% right so I could say times 0.98 and I'd get the same thing as if we took the 3610 minus the 72 20 I'm going to add some decimals home tab numbers adding decimals because they want some some change on this one so we got the cash and then accounts receivable I'll put this on the bottom accounts receivable is going to go down but it needs to go down by the entire amount here so it needs to go down by the 3610 the entire amount that is in there and then the difference which we can calculate is of course you know the debits minus the credits or it's also just this amount we have here if we add those two up the debits then equal the credits and that amount needs to go into sales discount so sales discount will be that item sales discount up here so this is the final journal entry that we got to get to we need to basically go through the story to get there so that we can see what was in accounts receivable before this transaction next one a company purchase 11 7 of merchandise on June 15 with terms 210 and 45 so 2% discount if paid within 10 days otherwise it's paid within 45 days and f will be shifting point the freight charge was 1350 and was prepaid by the seller on June 20th it returned at 2001 60 of that merchandise on June 24th it paid the balance owed for the merchandise taking any discount it is entitled to the cash paid on June 24th equals what okay so i'm going to go through the story again here we're basically tracking accounts payable this time so i'm going to break out the t account for accounts payable over here and just kind of make that up so that we can see that item and so there that is all right so now let's go through the story here and i'll just do the journal entries we could probably do this a bit quicker than this but this will tell us the whole story if we do it this way so our company purchase 11 7 of merchandise on June 15th so we got merchandise i'm going to call it inventory inventory for short and we got 11 7 debiting inventory increasing inventory and what will the credit to be accounts payable we didn't pay cash for it it's going to be accounts payable all right the freight charges and then if we track that in our accounts payable then we're going to be over here that's going to be the credit into accounts payable and then we're going to say that there was freight charges now this is the trick of this problem this problem is a bit tricky because of these freight charges they were paid but and we've got to pay back for them but they're not going to be included in the discount so what's what's going to happen is we're going to have an increase to the inventory because it's going to be part of the purchase price 1350 that's the debit the credit's going to go to the payable because it's going to show up on our invoice so it's still going to go to the payable it's going to increase the payable but we're not going to have to we're not going to get any reduction we're not going to get a 2 percent reduction in other words on the amount that is freight so I'm going to highlight that just to remember that and that's kind of the trick to this problem here that'll be a bit frustrating to look at and then we're going to say on June 24th it paid the balance oh okay and then on June 20th it returned to some of the merchandise so we returned merchandise so that means the inventory is going to go down I'll put that in first inventory is going down because we gave it back for uh June 24th 2160 and then the debit's going to go not to cash because we still have the ap owed so the balance owed then is going to be debited so if we look at our accounts payable now we would say okay the accounts payable summing the debits summing the credits the credits will then win that's going to be the case all the time with accounts payable of course by the 100890 that's what we would owe if we didn't have to account for this fact that we got this discount and we but we got this discount now so we need to account for the discount so the now this is where it's a bit tricky because we can't we can't take the 10 890 owed times the discount because we're not going to get a discount on the freight here so basically we have to take the discount before the freight so the amount due is equivalent to the 117 plus the amount that was returned or I could say flipping the sign this minus this so if we subtract those two out 117 minus the 2160 that's how much is owed that's not part of the freight and that part we're going to get a discount on we're going to get a 2% discount which we could calculate as 0.02 and then I'm going to go to the home tab font increase the decimals 0.02 multiply that out this equals this amount not including the the freight times the 0.02 I'm going to go ahead and underline this home tab numbers increase that's not what I did underline so let's do that one more time this equals the 954 times 2% that's the amount of the discount therefore if that's the discount the amount that we will pay is this minus this so we're going to say the amount that will be paid is the amount that is owed not including the freight minus the discount here and that will give us the amount that we have to pay and then we have to add to that the fact that we have this freight here so we've got the 13050 that we have to tack on for the freight I'm sorry the freight is up here in green that's why I made it green 13050 and that means the amount that we are going to pay at the end of the day will be the 9349 plus the 13050 and that's going to be the 10699 now that's what they're looking for here but if we wanted to see the journal entry we might want to just record that journal entry as well so we know that cash would be credited cash would go down I'm going to put that over here a credit of 10699 10699 is cash then we're going to debit the accounts payable but remember we're going to have to debit the accounts payable for the amount that is in here which is the 10890 so we have to because we're not going to pay the difference because we got a discount we're not going to pay it back so we got the 10890 we're going to need more credit so this number minus this number is a difference 191 which of course is the discount we got I'm going to do that with a negative sum formula so all I'm doing is saying this minus this is going to be the plug so that this plus this equals the debits equal the credits here now you might be thinking we should put that to some account with discount in the name but notice that this one is not going to be a discount because what happened is we overcharged our inventory we put our inventory on the books for the amount before the discount the 117 plus the the freight and it should be the amount after the discount so we need to reduce it for the discount that we got because we overstated our inventory and that's why we're going to credit the inventory in this case next one says that a company purchased 3950 worth of merchandise uh transportation cost uh merchandise transportation costs were an additional 350 the company later returned 270 worth of merchandise and paid the invoice within the 1 cash discount period the total amount paid uh for the merchandise is what so in this case once again we're going to be tracking the ap so I'm just going to make a t account for accounts payable over here and track that as we go so I'm going to put it underline here and we'll put a line there completing the t okay so the company purchased 3950 of inventory so we're going to say inventory then is going to go up I'm going to try to put all the invoice all the journal entries in here and we paid for it not with cash but with accounts payable that of course would increase our t account the payable is going up like so so we're going to owe that at the end of the day the company later uh I'm sorry and then transaction costs were an additional 350 transportation costs were additional 350 so that's going to be included in this item here so we're going to say that the transportation costs are going to be part of inventory and that's going to be for the 350 and and again I'm going to basically say that we're going to pay that to the vendor that's what this problem is assuming so it's going to be on the invoice meaning it's part of the payable but we're not going to get the discount on that amount so we got to basically be careful of that when we calculate our discount it's not going to include that amount and then the company returned 270 worth of merchandise so we returned it so that means the inventory is going to go down so I usually think about that first 270 we're getting that's going down because we're getting rid of it we're going to debit something and that debit's not going to be cash in this case it's going to be accounts payable so accounts payable and our t account now is the 270 and so if we sum up our payable here we've got the 270 debit and we have the credits of 4300 meaning we have a balance of 4030 now we're assuming that we are going to pay within the discount period and so you would think we would take that balance due for 030 times 1% but note that once again it's not going to get a discount on this 350 we're not getting a discount on the 350 so what what we'll have to calculate then is we're going to take this let's put it over here we're going to take the 3950 this number and we're going to subtract from that the 270 270 and that's the difference this it's in essence this minus this which is a credit of the 3680 so that's the portion that's not including the 350 or you could take you could do it this way we could take the balance due 4030 and we're not wanting to include this 350 okay and then we're going to multiply that times the discount 0.01 and if I put my cursor there home tab increase and I'm going to go ahead and underline that and if we multiply that out it's the 3680 times the 1% giving us 37 so 37 and that means that we're actually going to pay then this 3680 minus the 37 there and that's how much we would pay before the freight so that's how much we would pay not including the freight and remember that what they're going to do is they're going to tack on the shipping cost and they're going to say we're not giving you a discount on the shipping cost so remember that was this 350 that we took out so if we add to this the 350 I'm going to go ahead and underline home tab font underline we're going to take the 3643 plus the 350 that's what we would actually end up having to pay at the end of the day may have to add some decimals to that if depending on whether they want those or not now I'm going to move this over here one more time and they didn't ask for this that's what they asked for but if they did ask for the journal entry we can put the journal entry in place and that's the amount of cash that we're going to pay so we put that on the bottom cash is going to go out for uh put that here this amount I'm going to make it a credit with a negative this amount the amount that's going to go out accounts payable it's going to be the other side of it but the accounts payable remember is going to have to be the debit of the entire amount that's in there which in this case is 4030 and so the difference then meaning the debits minus the credits we need a credit here so this number minus this number if I highlight them both 37 this 37 here I'm going to do it with a negative sum which was basically going to say this number minus this number and flip the sign that's the plug that's that 37 we may need to add decimals so we can add decimals if we want to and we put the pennies in there and again you might be thinking that should be some kind of discount account but what happened is we overstated inventory again we overstated the inventory by the fact that we didn't account for the 1% discount now we need to account for it reducing the inventory by the amount of discount that we are now getting that's why we're reducing inventory with a credit of that 36.8