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Question 4 (8 marks) James Brown runs a business of selling amplifier parts
Question 4 (8 marks) James Brown runs a business of selling amplifier parts. The following transactions took place in October 2016. $ 612 750 Transaction Date Details 3 Purchase of goods on credit from Dave Grohl 2 7 Sold goods on credit to Tom Petty 3 12 Cash sales to Elvis Presley 4 14 Paid Dave Grohl the full amount owing. 5 30 Tom Petty paid the amount outstanding (there was a settlement discount of $20) As at 1 October 2016, Tom Petty's account shows a balance of $250. 820 612 980 Required: (a) Explain the advantages provided by the use of special journals. [3 marks) (b) For transactions 1 to 5, identify the special journals to be used. [2.5marks] (c) Post the transactions in the subsidiary ledger of James Brown with respect to the transactions with Tom Petty for the month of October 2016. [2.5 marks]
Expert Solution
| James Brown | |||||||
| a) Business transactions are of various types,it is not possible to record each transactions at one place, so special journal are prepared . Special Journal includes Cash receipts journal,cash payment journal,Purchase journal,sales journal. | |||||||
| Advantage of Special Journal:- | |||||||
| 1)Division of Work: Instead of one journal subsidiary ledgers are prepared and work can be divided among a various number of persons. | |||||||
| 2) Saving of time: Various accounting processes can be prepared at the same time. | |||||||
| 3)Specialisation and efficiency: When the same work is handled by a particular person for a considerable time,he acquires knowledge and expertise in it. | |||||||
| 4) Availability of information: Separate book is maintained for each class of transactions,information relating to each class is available for one place. | |||||||
| b) | |||||||
| Transaction | Special Journal | ||||||
| 1) | Purchase Journal | ||||||
| 2) | Sales Journal | ||||||
| 3) | Cash Receipts Journal | ||||||
| 4) | Cash Payment Journal | ||||||
| 5) | Cash Receipts Journal | ||||||
| Month End Total from Cash Receipts Journal | |||||||
| General,Journal | Debit | Credit | |||||
| Cash | $ 1,800.00 | ||||||
| Sales Discount | $ 20.00 | ||||||
| Accounts Receivable | $ 1,000.00 | ||||||
| Sales | $ 820.00 | ||||||
| Month End Total from Cash Disbursement Journal | |||||||
| General,Journal | Debit | Credit | |||||
| Accounts Payable | $ 612.00 | ||||||
| Cash | $ 612.00 | ||||||
| Month End Total from Purchase Journal | |||||||
| General,Journal | Debit | Credit | |||||
| Inventory | $ 612.00 | ||||||
| Accounts Payable | $ 612.00 | ||||||
| Month End Total from Sales Journal | |||||||
| General,Journal | Debit | Credit | |||||
| Accounts Receivable | $ 750.00 | ||||||
| Sales | $ 750.00 | ||||||
| Cash Receipts Journal | |||||||
| Date | Account Cr. | Explaination | Cash Debit | Sales Discount Dr. | Accounts Receivable Credit | Sales Cr. | |
| 12-Oct | Sales | Transaction 3 | $ 820.00 | $ 820.00 | |||
| 31-Oct | Tom Petty | Transaction 5 | $ 980.00 | $ 20.00 | $ 1,000.00 | ||
| 31-Mar | Totals | $ 1,800.00 | $ 20.00 | $ 1,000.00 | $ 820.00 | ||
| James Brown | |||||||
| Cash Payment Journal | |||||||
| Date | Cash | Payee | Account Debited | Cash Credit | Merchandise (Cr) | Other Accounts Debit | Accounts Payable Debit |
| 14-Oct | Cash Paid | Dave Grohl | Dave Grohl | $ 612.00 | $ 612.00 | ||
| 31-Mar | Total | $ 612.00 | $ - | $ 612.00 | |||
| James Brown | |||||||
| Purchases Journal | |||||||
| Date | Account | Transaction | Accounts Payable Credit | Inventory Debit | |||
| 01-Oct | Dave Grohl | 1) | $ 612.00 | $ 612.00 | |||
| 31-Mar | Total | $ 612.00 | $ 612.00 | ||||
| c) | |||||||
| James Brown | |||||||
| Sales Journal | |||||||
| Date | Account Debited | Transaction No. | DR(Accounts Receivable) CR(Sales Revenue) | ||||
| 07-Oct | Tom Petty | 2 | $ 750.00 | ||||
| 31-Mar | Total | $ 750.00 |
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