 Hello, in this lecture we're going to work some smaller test type problems, problems that could be in the format of multiple choice type questions. We have here a company records purchases using the net method. On February 1st, they purchased merchandise inventory on account for $8,480 with terms 3, 10, and 30, 3% discount paid within 10 days, otherwise paid within 30. The February 1st journal entry to record this transaction would include what? Now normally when we buy something and usually the problem will assume that we're going to buy it not including the discount and then if we happen to pay it within 10 days we have to adjust for the fact that we got the discount, the assumption being that we're going to basically pay at the end in 30 days. And if there was no discount that's what we would typically do because we want to hold on to our money as long as possible. But if we think that we're always going to take advantage of the discount meaning we are going to do our best to pay within 10 days, then we want to put it on the books at the amount it would be after the discount. So we can calculate that a couple different ways. We can say that the amount, the inventory cost is going to be this 8,480 and the discount rate, the rate of discount is going to be 3% or 0.03. That's of course what this 3 means up here in this 3-10, 3% discount. I'm going to go home tab numbers, add decimals like this and then I'm going to make it a percent over here. So you can see it's 0.03 or 3% and then I'm going to go home tab font underline that and then if we multiply that out, this is 8,480 times 3, we get our discount of 254. We could go home tab numbers group, add some decimals, it's 254.40 cents. This is the discount. So if we want to think about the amounts of money that will eventually be paid after the discount, it's going to be this 8,480 minus the 254.40 and that's amount of money that will actually be paid once again, home tab numbers, add decimals. Now it could be useful for us to think about this a little bit quicker. You could think about this more quickly. This is kind of like a discount here if a sale, if you went to the store, if you said 8,480 was the sales price and then there was a discount of 3%, well that means you're going to get 100% minus that 0.03 is what you're going to pay. So I'm going to go to the home tab numbers group percent. If we're going to get a 3% discount, we're going to pay 97% and therefore that could be a bit quicker for us to calculate. We can just take this 8,480 times 97%, that's the amount that would be paid then. So the journal entry would be an inventory, I'm just going to abbreviate it, would be the 8,225.6 if we add the decimals here, add the pennies on and then we're going to have a credit to the accounts payable. Now if the question had multiple choice questions and they basically said that is it a debit to inventory, is it a credit to inventory, is it a debit to a payable, is it a credit to a payable, it's good to actually write out the entire journal entry even if it only asks for half of it because that will tell you what the debit is and what the credit is. Next one says that during the month of September, company issued a check in the amount of $712 to supplier on account. The check cleared the bank during September, company recorded the disbursement incorrectly as 722, journal entry to correct the mistake. So what happened here is we issued a check and what we data input into our system is different from the check amount. I get how would this happen, well if we made the check by hand outside of our system and then we just enter that data into the system, it's possible for us to miskey. If we made the check within the system, it's unlikely for this type of error to happen. But if this does happen, what we're doing is the bank reconciliation process, we're going to see that the bank account is going to have something than what we have, here's the check number on the bank account and here's the amount, it's different than the check number in our system and the amount we have. The bank is probably right because they actually processed the check. So we're going to have to fix our side, we're going to have to fix our books. So we're going to obviously say this is the amount that we had 712, the company recorded the disbursement at 722 and so 712 minus 722, that's the adjustment we're going to have to make $10 to our cash account. The only question being is it going to go up or down and for that we have to say, well this is what we had in our checking account and that amount is a check bringing down our cash balance and therefore this difference, we have to bring it down by more, bring it down by 10 more because this was the check that we wrote, this is what it should have been, it should have been higher, the check decrease in our cash balance should have been higher therefore the difference needs to be decreased from our cash balance because we recorded the check at an amount that was too low compared to what it should have been. So getting the direction is usually what's kind of complicated on these. Next one says that the following information is available for the company at December 31st, money market fund, well let's see what they want to do first, we're going to go down to the bottom here, it says based on this information company should report cash and cash equivalence in December 31st of what. So basically I put these numbers over here, what we're doing is we're trying to figure out what qualifies as cash, is it close enough to cash that we're going to group it into the cash box and what type of investments basically are going to be cash and what types of investments are not cash. And we're going to basically, what we're going to do is just take these numbers and I'm going to sum them up over here, we're just going to sum this column up, well not like that, we're going to sum this column up like this and then we're just going to decide, go through these and decide should they be included in cash. Now money market fund account it's pretty liquid, it doesn't have any restrictions on it so yeah that's basically going to be in the cash number, if we look at the balance sheet we're just going to say that's in our line item for cash, we're not going to break out that into a separate cash line item and then certificate of deposit, maturing June 30th, this is an investment it's going to mature but there's a restriction on it, we can't just spend that money so we're going to break that out as to some other type of investment, post-dated checks from customers, we're assuming and this is kind of tricky in this problem, we're assuming that post-dated checks are something that's going to be dealt with when we report our checking account balance number and cash, cash in the bank, cash in the bank account, that's going to be this one of course that's the one we would most often think of is the cash in the bank account not sufficient checks from customers returned by the bank and again we're kind of assuming that this has had been dealt with in the checking account amount here, we've dealt with these inconsistent or the problems when we did our reconciliation so we're not going to include that pay-de-cash, we are going to include that if we have this is outside of our checking account but clearly it's very liquid it's going to be cash inventory of postage stamps we're probably going to use those that's going to be a current assets but it's not cash US Treasury bills bill purchased December 15 and maturing February 28th and because this are very liquid Treasury bills we actually are going to include the Treasury bills here at 1003 and that'll bring us up to a cash amount of 3681 at this point so if we were just going to look at one line item on the balance sheet it could just be one line item saying cash and cash equivalence 3681 next one says a company had 65 missing from petty cash that was not accounted for by petty cash receipts the correct procedure is to what so we can imagine here that of course we are counting up the petty cash and we're trying to reconcile it with the receipts that we have been saving for things like lunch and whatnot that we've been paying out of the petty cash and there's a discrepancy of $65 meaning there's $65 missing comparing to the receipts to the petty cash that is remaining and so we have to account for this and if we are replenishing the petty cash we can imagine that we're putting money taking money out of the checking account putting it back into petty cash what we're doing is we're adding up all those expenses like meals and entertainment expense or any other miscellaneous expense probably we're going to put that in and then we're going to credit the the cash account the checking account to put that money out of the checking back into petty cash and then we're going to have this this piece here 65 is going to be missing out of this journal entry if we imagined that and the what are we going to debit for that we're going to debit the cash over short so we're going to kind of track it by putting in this cash over short account and say yeah we recognize the fact that was short and this 65 credit then is going to be included in the cash checking account that we're going to credit and once again it's probably going to be more than 65 over here because this might be done with some longer journal entries such as we have also miscellaneous expense we have meals and entertainment so it's probably part of a larger type of journal entry and then we would sum it up and in this way negative some so we would if it was the case that we needed 815 to replenish the petty cash coming out of our checking account going back into the petty cash we would have to reduce the checking accounts and then we would have to account for our receipts and put them into the proper accounts and we would have this difference of 65 due to the fact that 65 dollars was not recorded somehow and therefore we're going to have to just dump that into an account called cash over short and so doing we are able to track the amount in there and of course reconcile at the same time