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1) Record the transaction in the general journal. 2) Post entry recorded in the general journal to the appropriate ledger accounts listed below. 3) Update

1) Record the transaction in the general journal.

2) Post entry recorded in the general journal to the appropriate ledger accounts listed below.

3) Update inventory card for June 28th transaction.

Accounting policies:

a.Business operations: The Digital Village is set up as a private non-listed corporation based in Miami with Leonardo Bartos as the sole stockholder. The business derives its main source of revenue from retail sales of electronic goods.

The electricity and water expenses incurred during the month relate to the running of the office. Additional expenses include an insurance policy to protect the equipment in the office in the event of theft or fire.

All costs associated with the office are classified as general and administrative expenses.

Leonardo is the only full-time employee and his role is to handle all administrative tasks. Leonardo's salary is paid once at the end of each month. All other employees are sales staff who are employed on a part-time basis. The sales staff receive their wages on a weekly basis.

b.Accounting cycle: The business adopts a monthly accounting cycle.

c.Purchases: Purchases are recorded when the business receives the goods. All items purchased are received on the same day as recorded in the transaction list, except for purchase orders which are received at a later date. Note that the business uses the gross method of recording purchases and receives trade discounts from some suppliers.

d.Revenue recognition: The business recognizes revenue when goods sold are delivered to customers. All items sold are delivered on the same day as recorded in the transaction list except for sales orders, which are delivered at a later date as agreed with the customer. Note that the business uses the gross method of recording sales and sometimes grants trade discounts to customers. Past experience has shown that offering early payment discounts did not increase the likelihood of accounts receivable being paid promptly. Therefore, discounts for early payment of accounts are not normally offered to credit customers except in exceptional circumstances.

e.Sales returns: So that the business can easily track the level of sales returns in relation to overall sales, all sales returns are recorded using a contra revenue account (Sales Returns and Allowances) rather than being recorded directly in the Sales Revenue account.

f.Sales tax: Leonardo has advised you to ignore the effect of the sales tax. [ASIDE: This is an assumption to make the practice set easier for you to complete. In the real world, sales tax cannot be ignored.]

g.Cash: The business accepts cash and checks and uses checks to pay for the majority of its expenses. On the day checks are received, Leonardo deposits them at the bank. It may take a number of days for the checks to be cleared by the bank. The business holds its checking account with BitiBank.

h.Inventories: The business uses the perpetual inventory system and applies the FIFO method to allocate costs to inventory and cost of goods sold. Note that the business maintains a set of inventory cards with multiple pairs of lines to keep track of changes in inventory. In each inventory card under the Balance column, items with different unit costs are listed in separate lines with the items purchased earlier listed first in the pair of lines provided.

i.Prepayments: The business has a policy of recording prepayments, including office supplies, as assets. At the end of the month, adjustments are made to the relevant accounts to recognize the expense during the accounting period.

j.Property, plant and equipment: Property, plant and equipment items are depreciated over their estimated useful life using the straight line method to calculate the depreciation charge. Depreciation is allocated on a monthly basis and the monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year.

k.Long term liabilities: The business obtained an interest only loan from Earth Bank on June 1, 2017 at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2017 and the principal on the loan is due on June 1, 2020.

June Transaction:

28) Returned 8 faulty BlueBerry Phones, originally purchased for $536 each, to JCN Electrical. Received a Credit Note for $4,288.

GENERAL JOURNAL

Date Account and Explanation Post Ref. Debit Credit
Jun 20 Sales Returns and Allowances 401 1,712
Jun 20 ARC - Turbo Tech 110/110-3 1,712
(sales return)
Jun 20 Merchandise Inventory 120 976
Jun 20 Cost of Goods Sold 500 976
(sales return)
Jun (select)
(select)
Jun (select)
(select)

General Ledger:

Account: APC - Accounts Payable Control Account No. 210

Date Description Ref. Debit Credit Balance
May 31 Balance 43,616 CR
Jun GJPJSJCRJCPJ DRCR
Jun GJPJSJCRJCPJ DRCR
Jun GJPJSJCRJCPJ DRCR

INVENTORY CARDS:

BlueBerry Phones

Date Purchases Cost of Goods Sold Balance
Units Unit Cost ($) Total Cost ($) Units Unit Cost ($) Total Cost ($) Units Unit Cost ($) Total Cost ($)
May 31 10 416 4160
15 536 8040
Jun 12 3 416 1248 7 416 2912
15 536 8040
Jun 18 10 536 5360 7 416 2912
25 536 13400
Jun
Jun

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