Question

Journal Entries for Merchandise Transactions on Seller's and Buyer's Books-Perpetual System 

The following are selected transactions for Kim, Inc, during the month of June: 

June 21 Sold and shipped on account to Lowery Company, $4,000 (52,000 cost of merchandise. With terms of 2/10.30 

       28 Lowery Company returned defective merchandise billed at 5400 on June 21 ($200 cost.) 

       30 Received from Lowery Company a check for full settlement of the June 21 transaction 

Required 

Prepare the necessary Journal entries for (a) Kim, Inc, and (b) Lowery Company. Both companies use the perpetual Inventory system.

Answer 1

Date	Particulars	debit	Credit
Jun21	Sold Merchandise to lower company in terms of 2/10,n/30
	Lower company debtor to Sales Account	$4000	$4000
Jun21	Cost of merchandise sold to Lower company
	Lower Company debtor to Manufacturing Account	$2000	$2000
Jun28	Merchandise returned by Lower company
	Sales return account debtor to Lower company	$400	$400
	Cost of merchandise returned by Lower company
	Manufacturing account debtor to Lower company	$200	$200
Jun30	Received amount due from Lower Company
	Bank account(cheque) debtor to Lower Company	$4000	$4000

Profitability Analysis

Net Sales= $200000

Operating Profit= Net Sales- Cost of goods sold- Operating expenses= $200000-$110000-$40000=$50000

Gross Profit= Operating Profit+Other Income= $50000+$25000=$75000

Gross Profit ratio= Gross Profit/Net sales= $75000/$200000= 3/8=0.35=35%

Operating Profit ratio= Operating Profit/ Net Sales= $50000/$200000= 1/4=0.25= 25%

Date	Particulars	Debit	Crredit
Jun1	Purchased Merchandise with 2/10 and n/30 terms
	Purchase account debtor to other company account sales a/c	$10000	$10000
Jun3	Freight account debtor to cash account	$550	$550
Jun7	Other company sales return A/c debtor to crushing dis company	$600	&600
Jun10	Other company sales a/c debtor to crushing dis company cash account	$9400	$9400
Jun13	Customer purchase a/c debtor to Crushing dis sales a/c	$10000	$10000
Jun16	crushing dis sales return a/c debtor to customer purchase a/c	$750	$750
Jun22	Crushing dis Cash account debtor to customer a/c	$9250	$9250