Listed below are selected examples of transactions related to the purchase and sale of merchandise inventory. Assume a perpetual inventory system is in use.

1. Purchase of $3,500 of inventory for cash.

2. Purchase of $4,000 of inventory on account, terms 2/10, n/45.

3. Payment of $400 cash for freight on purchase of inventory (FOB shipping point).

4. Return of $750 of inventory to seller for credit on account.

5. Payment of amount owed for purchase of $3,500 of inventory, terms 2/10, n/30, paid within discount period.

6. Sale of inventory on account, terms n/30. Selling price $10,000; cost of sale $4,000.

7. Payment of $600 cash for freight on sale of inventory (FOB destination).

8. Return of unwanted inventory from buyer for credit on account. Selling price $1,000; cost of sale $400. Goods restored to inventory for future resale.

9. Return of damaged inventory from buyer for cash. Selling price $750; cost of sale $300. Goods not resaleable are discarded.

10. Receipt of payment ($6,000) from customer on account, terms n/30.

Instructions

For each of the above transactions, indicate:

(a) The basic type (asset, liability, revenue, or expense) of each account to be debited and credited;

(b) The specific name of the account(s) to debit and credit (for example, Merchandise Inventory); and

(c) Whether each account is increased (+) or decreased (-) and by what amount. The first one has been done for you as an example.

Transcribed Image Text:

Account Debited Account Credited Basic Type of Account Asset Specific Basic Type of Account Asset Amount Merchandise +$3,500 Specific Account Account Amount -$3,500 1. Cash Inventory