Homework SoursePrepare the adjusting entry necessary on August 31 if financ
Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time.
Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method.
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Solution
Adjusting entry on August 31 will be required only if purchases are recorded at net amounts and discounts lost are treated as finance expenses.
Journal Entries (Amount in $)
Working note:-
1) For the payment of invoice of 15 August on August 28 no discount will be allowed as the payment is made after 10 days from the date of purchase.
2) Only purchase discount lost related to purchase on August 10 will be adjusted on August 31 as 10 days has not expired for the purchase of inventory on August 25 on August 31.
| Date | Account titles and explanation | Debit | Credit |
| August 10 | Purchases | 30,772 | |
| Accounts Payable [$31,400*(100%-2%)] | 30,772 | ||
| (To record the purchase of inventory on account) | |||
| August 13 | Accounts Payable [$1,500*(100%-2%)] | 1,470 | |
| Purchases | 1,470 | ||
| (To record the return of part of purchase on August 10) | |||
| August 15 | Purchases | 35,838 | |
| Accounts Payable [$36,200*(100%-1%)] | 35,838 | ||
| (To record the purchase of inventory on account) | |||
| August 25 | Purchases | 41,748 | |
| Accounts Payable [$42,600*(100%-2%)] | 41,748 | ||
| (To record the purchase of inventory on account) | |||
| August 28 | Accounts Payable | 35,838 | |
| Purchase discount lost ($36,200*1%) | 362 | ||
| Cash | 36,200 | ||
| (To record the payment to accounts payable) | |||
| August 31 | Purchase discount lost ($31,400*2%) | 628 | |
| Accounts Payable | 628 | ||
| (To record the adjusting entry for purchase discount lost of purchase on August 10) |
