Littleton Books has the following transactions during May. May 2 Purchases books on account from Readers Wholesale for $4,100, terms 2/10, n/30. May 3 Pays cash for freight costs of $280 on books purchased from Readers. May 5 Returns books with a cost of $400 to Readers because part of the order is incorrect. May 10 Pays the full amount due to Readers. May 30 Sells all books purchased on May 2 (less those returned on May 5) for $4,800 on account. Record the transactions of Littleton Books, assuming the company uses a perpetual inventory system.
1. Purchases books on account from Readers Wholesale for $4,100, terms 2/10, n/30.2. Pays cash for freight costs of $280 on books purchased from Readers.3. Returns books with a cost of $400 to Readers because part of the order is incorrect.4. Pays the full amount due to Readers.5. Record the sale of inventory on account.6. Record cost of inventory sold.

May 2 Purchases books on account from Readers Wholesale for $4,100, terms 2/10, n/30.

Dr Merchandise inventory 4,100

    Cr Accounts payable 4,100

May 3 Pays cash for freight costs of $280 on books purchased from Readers.

Dr Merchandise inventory 280

    Cr Cash 280

When you use perpetual inventory all freight costs (and any additional costs related to the purchase) must be included in the inventory account as part of the cost of the merchandise.

May 5 Returns books with a cost of $400 to Readers because part of the order is incorrect.

Dr Accounts payable 400

    Cr Merchandise inventory 400

May 10 Pays the full amount due to Readers.

Dr Accounts payable 3,700

    Cr Cash 3,626 [= ($4,100 - $400) x 98%]

    Cr Purchase discounts 74

Since the payment is done within the discount period, you will pay 2% less. The purchase discount has a credit balance since it reduces costs.

May 30 Sells all books purchased on May 2 (less those returned on May 5) for $4,800 on account.

Dr Accounts receivable 4,800

    Cr Sales revenue 4,800

Dr COGS 3,980

    Cr Merchandise inventory 3,980

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