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Complete of ch.5 & ch.10

Ch.5
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We have two systems to record the process of purchase or sales of
goods:
1- Perpetual inventory system ‫نظام الجرد المستمر للمخزون‬
2- Periodical inventory system ‫نظام الجرد الدورى للمخزون‬
Dr.El Gibaly, focus on periodical system only
Suppose the firm use the periodical inventory system
In the periodic system the transaction recorded periodically in which when purchase of
goods, purchase account is debited by the amount of purchasing and when sale of goods,
sales account is credited only

A – Purchase of merchandising:

Ex –suppose that AL noor. co, purchase 300 Camera for 500$ each from AL Samy co,.
Prepare the journal entry?

Purchases (300X500) 150,000

Accounts payable 150,000

B – Freight costs: the cost of transportation is considered as a part of costs of goods

purchased so the purchaser co, recording it as an original cost as a following:

Ex – suppose that AL noor. Co, pay 500$ for the transportation co, to transport 10000
unit from Cairo to Minia .
prepare the journal entry?

Freight –in costs 500

Cash 500

C- Purchase returns and allowance:

Ex – assume that AL noor. co, returned 10 cameras to Al Samy co, prepare the
journal entry?
Accounts payable 5000
Purchases returns (10X500) 5000

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D – Purchase discount (trade discount &cash discount)

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Ex- supposes that AL noor. Co, purchase 100 Camera for 300$each, with trade discount

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10% and credit terms (5/15,n/90),suppose also that the firm pay 10000$through the first
10 days of the period of discount and the rest at the end of the period
Prepare the journal entries to record these transactions?
Solution
1 – To record the purchase of 100 camera with trade discount:

Purchases (100X300X10%) 27,000

Accounts payable 27,000

2 – Payment of 10,000 through the discounting period (10,000X5%)

Accounts payable 10000
Purchase discount 500
Cash 9500

3 –payment the rest amount (27,000-10,000):

Accounts payable 17,000
Cash 17,000

E- Sales of merchandising:
In the periodic system we record the sales revenue only and there is no entry required to
reduce the cost of goods sold or inventory accounts:

Ex -Assume that AL noor, co, sold 20 cameras to samy 3nan co, for 500$each, prepare
the journal entry?
Accounts receivable 10,000
Sales revenue (20X500) 10,000

F – Sales returns and allowances:

Ex – suppose that samy 3nan co, returned 5 cameras to AL noor. co, prepare the journal entry?

Sales returns (5X500) 2500

Accounts receivable 2500

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G – Sales discount: trade discount & cash discount

Ex - suppose that ALnoor. Co, sale 20 camera to samy co, for 500$ each with trade
discount 10% and the credit terms (2/10, N/30), suppose also the firm collect 2000$
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within the discounting period ,and the rest collect after the discounting period .
Prepare the required journal entries?

Solution
1 – to record sales of 20 cameras with trade discount

Account receivable 9000

Sales revenue (20X500X10%) 9000

2 – to record collect of 2000$ within the discounting period.

Cash 1960
Sales discount(2%X2000) 40
Accounts receivable 2000

3 – To record the collection of the rest amount after the discounting period
Cash 7000
Accounts receivable 7000

And then he explains closing entries as a follows: 4 entries

1- To close the sales revenues the entry will be:
Sales revenues
Income statement
2- To close the expenses the entry will be:
Income statement
Expenses
3- To close net income the entry will be:
Net income
Owner's equity
4- To close the drawing the entry will be:
Owner's equity
Drawing

The end of ch.5

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Ch.10
Depreciation of fixed assets
The main elements of depreciation are :
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1- The cost of fixed assets

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2- The salvage value
3- The expected working year
There are 4 methods to calculate depreciation:

1- Straight - line method

The annual depreciation expense calculated as a following :

Annual dep- exp = cost of asset ÷ useful life

Suppose that the firm purchase a machine for 11000 and the salvage value is 1000 and
the useful life 10 year,
Required calculate the dep- exp for the first year?
Solution
Annual Dep- exp = (cost - salvage value) ÷ useful life
= (11000 - 1000) ÷ 10 = 1000 $ annually
The journal entry required to record dep- exp will be:
Depreciation expense 1000
Accumulated depreciation 1000
Note: dep- exp - recorded as exp -in income statement
Income statement
Revenues XXX
(-) Expenses:
Dep -exp (1000 )

Acc- dep - recoded as cotra- asset -- in balance sheet

Balance sheet
Assets
Current assts XX
Fixed assts
Machine 11,000
(-) acc-dep (1000)
Net cost of machine 10,000

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2- according to the production units:

Annual dep - exp = (cost of machine - salvage value) ÷ total number of units produced
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Ex- suppose that the firm purchase a machine for 100,000 $ this machine

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used to produced 200,000 units totally , if the units produced this year 25000
unit, and at the next year produce 12000 unit.

Required :
Calculate the annual dep- exp each year ?
Solution
Dep- exp per unit = 100,000 ÷ 200,000 = 0.5 per unit
Dep- exp of the first year = 0.5 X 25000 = 12500 $
Dep- exp of the next year = 0.5 X 12000 = 6000 $
The journal entries required to record the dep- exp :
For the first year :
Dep -exp 12500
Acc- dep 12500
Note: dep- exp - recorded as exp -in income statement
: Acc- dep - recoded as cotra- asset -- in balance sheet

For the next year:

Dep- exp 6000

Acc -dep 6000

Note: dep- exp - recorded as exp -in income statement

: Acc- dep - recoded as cotra- asset -- in balance sheet

The end of lecture 5

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