Read the following case, make journal entries and the process of recording transactions (posting) in the individual account book (ledger).
Miguel Vega has a music equipment sales business called Music Sound. During the month of February the following transactions occurred:
| Date (feb) |
Transaction |
| 2 | 20 speakers were purchased for $10,000 on credit to sell at the store outside of the discount period. |
| 4 | Of the speakers purchased on the 2nd, 4 were returned at a cost of $500 each to the vendor because they were damaged. |
| 6 | 20 amplifiers were purchased for sale on credit with a value of $6,000 with a payment term of 2/10 n/30. |
| 10 | A cash sale was made to a customer of 5 amplifiers for $2,500. |
| 12 | Payment for the purchase of day 6 was made in full. |
| 15 | Music Sound made a $5,000 credit sale to a customer with a term of 3/10 n/30. The cost of the merchandise is $2,500. |
| 18 | The customer who purchased merchandise on the 15th returned e units, $500 worth of merchandise because it was defective. |
| 20 | The customer who made the purchase on the 15th paid in full with the corresponding discount. |
In February, Miguel Vega’s music equipment sales business, Music Sound, engaged in several transactions. We will record these transactions in journal entries and then proceed to post them in individual account books (ledgers).
February 2: Music Sound purchased 20 speakers on credit for $10,000 to sell at the store outside of the discount period. This transaction involves two accounts: Accounts Payable (to record the credit purchase) and Inventory (to record the increase in inventory). The journal entry would look like this:
Journal Entry:
February 4: Four of the purchased speakers were returned to the vendor due to damage. Each speaker cost $500. This involves reducing both the Accounts Payable and Inventory accounts. The journal entry would be as follows:
Journal Entry:
February 6: Music Sound purchased 20 amplifiers for $6,000 on credit with a payment term of 2/10 n/30. This transaction, like the first one, involves Accounts Payable and Inventory accounts.
Journal Entry:
February 10: A cash sale of 5 amplifiers for $2,500 was made to a customer. This transaction affects Cash and Sales Revenue accounts. The journal entry would look like this:
Journal Entry:
February 12: Payment for the purchase made on February 6 was made in full. This involves reducing the Accounts Payable account. The journal entry would be:
Journal Entry:
February 15: Music Sound made a $5,000 credit sale to a customer with a term of 3/10 n/30. The cost of the merchandise is $2,500. This transaction impacts Accounts Receivable and Sales Revenue accounts.
Journal Entry:
February 18: The customer who purchased merchandise on the 15th returned defective goods worth $500. This reduces both Accounts Receivable and Sales Revenue accounts.
Journal Entry:
February 20: The customer who made the purchase on the 15th paid in full with the corresponding discount. This involves reducing Accounts Receivable and recognizing a cash receipt with a discount.
Journal Entry:
Now, let’s proceed to post these journal entries into individual account books (ledgers):
Accounts Payable Ledger:
| Date | Description | Debit ($) | Credit ($) | Balance ($) |
|---|---|---|---|---|
| Feb 2 | Inventory Purchase | 10,000 | 10,000 | |
| Feb 4 | Return to Vendor | 2,000 | 8,000 | |
| Feb 6 | Amplifier Purchase | 6,000 | 2,000 | |
| Feb 12 | Payment Received | 6,000 |
Accounts Receivable Ledger:
| Date | Description | Debit ($) | Credit ($) | Balance ($) |
|---|---|---|---|---|
| Feb 15 | Credit Sale | 5,000 | 5,000 | |
| Feb 18 | Return from Customer | 500 | 4,500 | |
| Feb 20 | Payment Received | 4,850 |
Inventory Ledger:
| Date | Description | Debit ($) | Credit ($) | Balance ($) |
|---|---|---|---|---|
| Feb 2 | Purchase of Speakers | 10,000 | 10,000 | |
| Feb 6 | Purchase of Amplifiers | 6,000 | 4,000 |
Cash Ledger:
| Date | Description | Debit ($) | Credit ($) | Balance ($) |
|---|---|---|---|---|
| Feb 10 | Cash Sale | 2,500 | 2,500 | |
| Feb 12 | Payment Made | 6,000 | (3,500) | |
| Feb 20 | Payment Received | 4,850 | 1,350 |
Sales Revenue Ledger:
| Date | Description | Debit ($) | Credit ($) | Balance ($) |
|---|---|---|---|---|
| Feb 10 | Cash Sale | 2,500 | 2,500 | |
| Feb 15 | Credit Sale | 5,000 | 7,500 | |
| Feb 18 | Return from Customer | 500 | 7,000 |
Sales Discounts Forfeited Ledger:
| Date | Description | Debit ($) | Credit ($) | Balance ($) |
|---|---|---|---|---|
| Feb 20 | Payment Received | 150 | 150 |
These ledger entries help track the financial transactions of Music Sound during the month of February. It provides a clear picture of the company’s accounts and balances, which is essential for financial management and reporting.
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