 Hello in this lecture. We're gonna work some smaller test type problems that could fit into a multiple choice format So we have a company purchased merchandise from a supplier on credits terms to I mean one ten and slash thirty four Eleven thousand three hundred. So what's that mean one percent discount if paid within ten days? Otherwise it's due within 30 days. So three days later the company returned 1200 of the merchandise when recording the return Transaction the company would do what now often times It's it's good for us to think about what the first transaction is and then think about the returns the company purchased merchandise If we purchase merchandise on account We would say that we are going to debit the inventory merchandise inventory would go up as an asset of eleven three and We would say we didn't credit cash cash isn't going down AP is gonna go down I'm just gonna abbreviate that I'm gonna represent my credits with a negative. There's the debit There's the credit. There's the journal entry if you want to indent that we go to the home tab alignment and indent So there's the journal entry now if we returned it then of course We have the reverse of this meaning the inventory that we just put on the books is now going away And it's an asset with a debit balance. So we're gonna make it go down by doing the opposite thing to it we're gonna credit inventory for the amount we returned of two one zero zero and Then we are going to debit something and if we had paid cash for it You would think we'd get cash back, but we didn't pay cash yet. We are reducing the payable So we have a payable of 11,000. We're gonna debit it reducing the payable We no longer owe the payable at this time next one says company had revenues of 2049 2049 million operating income of 993 million and average assets of 1303 million the return on assets is what so of course to calculate this We have a ratio the return on assets that we need to calculate and how we're gonna calculate the return on assets It's gonna be the operating income over the average assets total assets So that's basically what we need to do then and I'm gonna go ahead and I'll merge these and I'll center that and Underline it so that's what we need Those are the numbers we're gonna need and then of course if we plug the numbers into that formula we have the 990 million of operating income So I'm gonna say this is going to be 993 Alt enter over the average assets and they gave us the average which is 1303 and we could just divide that out now I just want to point out that the average asset if you look at financial statements You're not really gonna have an average asset on there You're not gonna find average assets anywhere what the average means is basically we're trying to find what the assets were at Basically kind of any point in time Throughout that period meaning the and we can try to get the average by taking the beginning Asset amounts divide and plus the ending average asset amount divided by two. That's basically the average We're gonna get the beginning number. It's the ending of the last financial statement last year So if they didn't give us the average asset It's the ending balance of the prior year which is the beginning balance of this year plus the ending balance of this year Which is of course the amount on the balance sheet Divided by two. So if we divide this out we get 993 divided by 1303 and that gives us one but if we go to the home tab numbers and we add some decimals it's 0.7621 and of course if we make it a percent move the decimal over 62 if we add decimals again 62% 62. I mean 76.21% Next one says company sold infantoid to a customer on credit for four thousand dollars terms to 10 and 30 Many in 2% if you give us the money within 10 days Otherwise, it's doing 30 days and the cost of the inventory was 3100 when recording the sales transaction in the sales journal. What's gonna be the sales transaction? All right, so what we're gonna have here is the sale and Generally, I would break this out into thinking about it as if you're selling something without inventory like a service and then think about the inventory So two separate journal entries, although it happens at the same point in time So if we did that if we think about the sales half of it, I would think it's cash affected We know we didn't get cash. We sold it on these credit terms. Therefore. What we got is an IOU accounts receivable I'm just gonna abbreviate accounts receivable 4,000 and what's the credit related to accounts receivable? Well, if it's a service company if we didn't have any inventory it would be income Revenue in the case of this is that revenue accounts called usually sales Sales is the revenue or income account. We can indent that home Alignment indent now sometimes people have problems with that because they don't feel like They earn the revenue as they do feel oftentimes when we do a service company We of course record revenue when we earned it when we did work, but the idea of us giving the inventory away That's when we earned it. That's when we earned the revenue Now let's think about the inventory half of it as if it's another journal entry Even though it happens at the same point in time the inventory is going down inventory as an asset So it's gonna go down with a credit of 3 1 0 0 because assets have debit balances and we have to do the opposite to it to make it go down And then we're going to debit something and that debit will then be the expense of Cost of goods sold cost of goods sold So what's the net effect of this journal entry then it would be credits going up income minus expenses 900 would be the the net income effect of this and I do want to point out that often times people will report this if we went by the strict rule of Debits go on top and credits go on the bottom and we recognize the fact that this is one journal entry Notice it could be written something like this the two credits going on the bottom and It all being one transaction at one point in time again in my opinion If you want to see something and it helps you to see it better Then you're better off writing it in the way that it helps you to see it better rather than following the convention of having the Debits on top and the credits on the bottom It's best to have a better audit trail than to follow You know arbitrary rule like that So many books are now doing this setting it up this way rather than this way But you might see it this way also note that we could record this in terms of journals So specific journals that we would put this into this is usually done if we were recording things by hand where we could port the items into a journal and then transpose all those into the General ledger at one point in time now I would still put the journal entry out before thinking about the journal that it would go into and the journal that we would talk about would be the sales journal Which would they gave us here the type of journal that it would go into It it's the sales journal because we're affecting sales But it's almost more appropriate to think about it to have as the sales and accounts receivable journal Because if we made it sell for cash it would not go in the sales journal So just be careful that of course we're going to put it into the sales journal And then you can just kind of read off what the debits and credits Will be when when you look at the types of journals It'll sell you well the sales journal is going to have to go to debit account seeable and credit sales And it's going to debit cost to get sold and credit inventory and if you just do the journal entry You'll be able to figure that out the tricky part about journals is to know the fact that a sales journal means sale on account Does not mean sale for cash Next one says company sold inventory to a retailer for 1460 receiving cash on the time of sale the cost of inventory was 970 when recording the collection from customers in It's cash receipts journal company would do what so again We're kind of think we're thinking about this in terms of a journal the types of journal Which we would put together if we're basically using a system that is by hand like in certain journals that we report And then put those into the General ledger at the end I would still think about the journal entry to do these of course and so a company Sold inventory if we sold inventory What would happen is cash affected in this case it is cash is going up We got cash we did not sell it on account the relevant point here is that note. We're not talking about and they actually gave it to us We're not talking about The sales journal in this case even though we made a sale we because it's not sales on account So keep that in mind any time cash is affected It's going to go into some kind of cash journal Even if it was a cash related to a sale at the same point in time So we're got in the journal entry would be 1460 and the credit would be Remember I would think about it as if we don't have any inventory first as if it was a service company It would be to revenue or income or in this case sales the revenue type account I'm going to indent that home to have alignment indent and then record the half related to the inventory And so the inventory would go down inventory is a debit It's going to go down with a credit they gave us the inventory amount being this 970 we're going to debit something for 970 as well I'm going to indent this home tab alignment indent and the debit will go to cost of goods sold So there's the transaction. So when you think about the cash journal It'll you'll have to list these out when we record this in the in the journal So if it's a receipts journal, obviously cash is going to go up and then the other accounts that will be affected sales is going to be credited we've got cost of goods sold debit and Inventory credit. So when we list it out in the journal, we'll have to record that in some way in The the cash receipts journal format next one says that a company purchased merchandise from supplier on credit terms 110 in 34 16,006 when recording the purchase transaction in the purchases journal the company would enter what so again We're talking about the journals and they gave us the journal that we're going to use So if we purchase something remember the purchase journal doesn't mean purchase for cash because that would go in the cash journal It means purchase something on account meaning purchasing it on credit meaning purchase it with accounts payable So I would once again think about the journal entry related to this and that'll tell you what accounts will be debited and credited in the purchase journal and Therefore, so if we purchased something we purchased inventory merchandise inventory Inventory is an asset. It's going to go up with a debit 1600 we're going to credit something that credit will be what not cash We didn't pay cash. We bought it on terms 110 in 30 1% discount if we pay within 10 days and then otherwise get to pay within 30 days and Therefore it's going to go into accounts payable the liability Liabilities of credit balances. We're going to increase the credit balance with another credit So I'm going to go to the home tab alignments indent that so the purchase journal This will basically be the line item on the purchase journal the purchase journal will say That what we can put one entry which will save debit inventory and credit's accounts payable because that's typically the transaction That's always going to go in the purchase journal next one says company sold inventory to a customer on credit for 2900 terms 3 10 and 30 3% discount if they pay within 10 days Otherwise it's due within 30 days and the cost of the inventory was 2000 when recording the collection from customers made within the discount period in its cash receipt journal Company would enter what so again? We're talking about the journals They gave us the journal that will be affected because we're talking about the receipt of the cash the second transaction not the sales but the receipt and we got it within the time period and of course cash is affected Therefore we're going to put it in the cash journal. What are the accounts that are going to be debit and accredited well Let's think about the journal entries so the company sold inventory to the customers there therefore. What's the journal entry there? We're going to I'm going to think about this in two different journal entries We're going to have the sales price which is going to be not cash receipt But a are is what we got to nine zero zero. They owe us that money. We're recording that before the Discount because we're assuming they're going to pay us after 10 days That's our normal assumption and then the credit is going to be to sales revenue income It's going to be sales if we sell stuff generally So we're going to sell that then we're going to think about the inventory is half of it The inventory half of it is that inventory is an asset. We sold some of it Therefore it's going down for 2000 and we're going to credit inventory because it's a debit balance and the opposite would make it go down and then we're going to debit something that debits going to be the cost of goods sold So there's our transaction now they paid us but they paid us within the discount period So the couple different ways we can figure that out. We know that cash is affected. We can say all right Well cash, we know we got cash, but we didn't get what we expected to get Being the 2009 because they paid within the discount period a couple ways we can calculate how much cash we got We could say all right. Well, they owed us the sale amount was 2009 but then we gave them a discount percent and that discount percent was 3% or 0.03 so I'm going to go ahead and go home tab and Increase the decimals numbers increase 0.03 or percent 3% and if I'm going to go ahead and underline that if I multiply that out We give them a discount of 2009 so this times 3 percent 87 we could see if there's any decimals home tab decimals or any decimals there No, it's an even number so we can keep it there. All right, and that's the discount then that we're going to give them So how much cash did we get after the discount? Well, it would be the 2 9 minus the 87 Another handy way to calculate the same cash amount here would be to just say okay Well, the sales amount is 2 9 if we gave them a 3% discount Then if I make this a percentage of the sale and I say this equals 100 percent minus the 3 percent We got 97 percent. All right, it doesn't work that way So I'm going to put this back over here. We can do it this way. This equals 100 minus 0.03 3% and then if I go over here home and I put the decimals that's 97 percent wise 97 percent It's handy to think about it that way if you go into a store and you're saying what's the sales What am I gonna pay after the after the discount after a sales price? The sales amount. Well, if there's a 3% of discounts, you're gonna pay the 100 percent minus 3% and then just say okay It's the sales price times 97 percent. That's how much we're gonna pay So the actual cash paid that we're gonna get in this case is going to be that 2 8 1 3 And then we're gonna credit the AR the amount that is owed The and note we cannot credit it for the 2 1 2 8 1 3 even though that's what we got we got to credit it for the full amount 2 9 because that's what we're actually going to get and we should probably actually put this down one But then we're going to have the difference being the discount So then we have the discount and that of course is going to be this number minus this number Because we need another debit here So that's going to be the sum of these and we probably should call that sales discount So negative sum of these That's the sales discount or we can calculate it to be equal to The sales price once again times 0.03 and then check that the debits 2 9 equal the credits 2 9 and then of course to be proper We should have the two debits on top So in any case when we when we list out the accounts that will be debit and credit We got the cash will be debit in the cash receipts journal And so we're sales discount in some way and then accounts receivable will have to be credited in that journal