MODULE 11

Question 1

Q: How are purchases recorded under the periodic inventory system?

Answer 1

🔹 A: Purchases are debited to the Purchases account instead of updating inventory directly.

Question 2

Q: How do you record a purchase of merchandise for cash under the periodic inventory system?

Answer 2

🔹 A:
Journal Entry:

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Purchases 25,000
Cash 25,000
(To record purchase of merchandise for cash)

Question 3

Q: How do you record a purchase of merchandise on account/credit under the periodic inventory system?

Answer 3

🔹 A:
Journal Entry:

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Purchases 25,000
Accounts Payable 25,000
(To record purchase of merchandise on account)

Question 4

Q: What type of account is Purchase Returns and Allowances?

Answer 4

🔹 A: It is a contra account deducted from Purchases on the income statement.

Question 5

Q: How do you record a return or allowance for unsatisfactory merchandise?

Answer 5

🔹 A:
Journal Entry:

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Accounts Payable (or Cash) 760
Purchase Returns and Allowances 760
(To record return or allowance on unsatisfactory merchandise)
📌 Note: If the purchase was made on credit, it reduces Accounts Payable. If paid in cash, the refund is recorded.

Question 6

Q: What does “2/10, n/60” mean in purchase terms?

Answer 6

🔹 A:

The buyer gets a 2% discount if they pay within 10 days.
If not paid within the discount period, the full amount is due in 60 days.

Question 7

Q: How is a purchase on credit recorded with discount terms?

Answer 7

🔹 A:
Journal Entry (at purchase date, Sept. 20):

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Purchases 4,000
Accounts Payable 4,000
(To record purchase on credit; terms 2/10, n/60)

Question 8

Q: How do you record a return of P1,000 worth of merchandise to the supplier?

Answer 8

🔹 A:
Journal Entry (Sept. 21):

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Accounts Payable 1,000
Purchase Returns and Allowances 1,000
(To record return of unsatisfactory merchandise)
📌 Note: This reduces the Accounts Payable balance.

Question 9

Q: If the company pays within the discount period (Sept. 30), what is the journal entry?

Answer 9

🔹 A:

Amount due after return: P4,000 - P1,000 = P3,000
Discount (2% of P3,000): P60
Amount paid: P2,940
Journal Entry:

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Accounts Payable 3,000
Purchase Discounts 60
Cash 2,940
(To record payment with discount)
📌 Note: Purchase Discounts is a contra account deducted from Purchases on the income statement.

Question 10

Q: If the company pays after the discount period (Oct. 5), what is the journal entry?

Answer 10

🔹 A:
Journal Entry:

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Accounts Payable 3,000
Cash 3,000
(To record payment without discount)

Question 11

Q: How is freight cost recorded when the company (buyer) pays for transportation?

Answer 11

🔹 A:
Journal Entry:

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Freight-in 500
Cash 500
(To record payment of freight for merchandise purchased)
📌 Note: Freight-in is recorded separately under the periodic system because inventory is updated only at the end of the period.