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John’s Specialty Store uses a periodic inventory system. The following are some inventory transactions for the month of May: 1. John's purchased merchandise on account for $6,300. Freight charges of $950 were paid in cash. 2. John’s returned some of the merchandise purchased in (1). The cost of the merchandise was $1,250 and John’s account was credited by the supplier. 3. Merchandise costing $3,450 was sold for $6,500 in cash. Required: Prepare the necessary journal entries to record these transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Answer:

1.1. Debit Merchandise: $6,300

Credit Account payable: $6,300

1.2. Debit Merchandise: $950

Credit Cash: $950

2. Debit Account payable: $1,250

Credit Merchandise: $1,250

3.1. Debit Cash: $6,500

Credit Revenue: $6,500

3.2. Debit Cost of good sold: $3,450

Credit Merchandise: $3,450

Explanation:

1. When purchasing merchandise, John's must record their increasing of merchandise and payable. Freight charge paid by cash must be calculated to merchandise account as purchasing expense.

2. When returning merchandise, John's merchandise and payable would decrease.

3. When John's sold merchandise, the company must record revenue and cost of good sold respective, following matching concept in accounting.

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