Question

Prepare correcting general journal entries required at December 31, 2016, assuming that the books have not been closed.

An invoice for $7,500, terms f.o.b. shipping point, was received and entered December 30, 2016. The receiving report shows that the materials were received January 4, 2017, and the bill of lading shows that they were shipped January 2, 2017.

What is the correct general journal entry for this transaction?
1) Debit Accounts Payable $7,500; Credit Inventory $7,500
2) Debit Accounts Payable $7,500; Credit Accounts Receivable $7,500
3) Debit Inventory $7,500; Credit Accounts Payable $7,500
4) Debit Accounts Receivable $7,500; Credit Accounts Payable $7,500

Answer 1

The correct journal entry for an invoice on FOB shipping point terms is to debit Inventory and credit Accounts Payable when the goods are shipped, which in this scenario is option 3) Debit Inventory $7,500; Credit Accounts Payable $7,500

Step-by-step explanation:

The correct general journal entry for an invoice received on December 30, 2016, for goods shipped on January 2, 2017, and received on January 4, 2017, based on FOB shipping point terms, would be option 3) Debit Inventory $7,500; Credit Accounts Payable $7,500. This is because under FOB shipping point, the buyer takes ownership of the goods once they are shipped, and therefore, the inventory should be recorded when the goods are shipped, not when they are received. The accounting period that includes the shipping date (January 2, 2017) would be the correct period to recognize the expense and liability, which means in this case, the entry should be made for the year ending December 31, 2016.