Perpetual Inventory System Journal Entries

Journal Entries for the Purchase of Inventory from a Supplier:

Transaction Description Journal Entry Account Title Debit Credit

Purchase of Merchandise on credit from a supplier. Purchase returns and allowances Return of merchandise to supplier.
Freight-in costs on purchases Payment of freight-in cost

Merchandise Inventory Accounts Payable Accounts Payable Merchandise Inventory

Merchandise Inventory Cash

XXX XXX XXX XXX

XXX XXX

Payment made to reduce accounts payment for Accounts Payable XXX merchandise purchased from a supplier on Cash XXX credit. Already received bill from supplier Merchandise Inventory XXX When it comes to the payment for merchandise purchased on credit, you will multiply the cost minus any retuned merchandise times the discount rate to calculate the dollar amount for the discount. You credit merchandise inventory for the reductions in the original list price record at the time of purchase. You will then subtract the discount amount from the accounts payable amount to arrive at the amount of cash paid out.

Journal Entries for the Sale of Merchandise to a Customer:

Transaction Description Journal Entry Account Title Debit Credit

A sale of merchandise to a customer on credit: This activity requires two journal entries one to record the sale and the other to remove the inventory from the inventory account. Customer returns defective or undesired merchandise to the seller. If an allowance is granted due to damage or displease, then only use the first of these two journal entries.

Accounts Receivable Sales Revenue Cost of Goods Sold Merchandise Inventory Sales Returns and Allowances Accounts Receivable Merchandise Inventory Cost of Goods Sold

XXX XXX XXX XXX XXX XXX XXX XXX

Cash XXX Cash payment made by customer for merchandise purchased on credit at an earlier Sales Discount XXX date with a discount for early payment Accounts Receivable XXX To calculate the amount of the discount recognized multiply the original list price minus any returns or allowances times the discount rate. Subtract the result from the accounts receivable after any deductions for returned merchandise to arrive at the dollar amount of cash received from the customer.

MJC Revised 10/2011

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