Chapter3

BasisofAccountingandCreditTransactionsTopicsCovered3.1CreditTransactionsDoubleEntry3.2QuickSummaryofThisChapter 3.1CreditTransactionsDoubleEntry

Howtoaccountforcredittransactions?TakeJohnsonexampleinthelastchapter.Transaction1:Johnsonpurchasesgoodsoncreditfor$5,000.Theaccountingtreatment:DrPurchases$5,000(toincreasethe“purchasedgoods”atcost)CrTradepayables$5,000(toincreasetheamountowedorliabilitytothesupplier)Transaction2:Johnsonsellsgoodsfor$6,000tocustomersoncredit.Theaccountingtreatment:DrTradereceivables$6,000(toincreasetheassetreceivablehereby$6,000)CrSalesrevenue$6,000(toincreasesalesrevenueby$6,000)Transaction3:Johnsonsettles$1,000liabilityowedtothecreditsupplier.Theaccountingtreatment:DrTradepayables$1,000(todecreasethemoneyowedtothesupplier)CrCash$1,000(todecreasethecashassetvalue)Transaction4:Johnsonreceives$5,000cashfromthecreditcustomer.Theaccountingtreatment:DrCash$5,000(toincreasetheassetby$5,000)CrTradereceivables$5,000(toreducetheassetby$5,000)Transaction5:Johnsonreturnedgoodscosting$200toasupplier.Theaccountingtreatment:DrTradepayables$200(todecreasetheliabilityowedtothesupplier)CrPurchases$200(toreturnthegoodstothesupplier,hence,toreducepurchasescosts)Transaction6:Johnsonreceivesgoodsreturnedbyacustomer.Thetransactionvalueis$100.Theaccountingtreatment:DrSalesrevenue$100(todecreasethesalesrevenueof$100)CrTradereceivables$100(todecreasetheassetof$100)3.2QuickSummaryofThisChapterInanincreaseintradereceivablesassetbecauseofacreditsale,wedebitit.Inanincreaseintradepayablesliabilitybecauseofacreditpurchase,wecreditit.Forgoodsreturnedfromacreditcustomer,wedebitsalesrevenueandcreditthetradereceivablestocancelthesale.Forgoodsreturned