Question

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Littleton Books has the following transactions during May.
May 2 Purchases books on account from Readers Wholesale for $3,300, terms 1/10, n/30.
May 3 Pays cash for freight costs of $200 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 $4,000 on account
Required: 1. Record the transactions of Littleton Books, assuming the company uses a perpetual inventory system.

Answer 1

In a perpetual inventory system, Littleton Books would record a debit to accounts payable and a credit to inventory for the returned items. For the sale of books, accounts receivable would be debited and revenue credited, along with adjusting the inventory and cost of goods sold accordingly.

Step-by-step explanation:

The transactions of Littleton Books, assuming a perpetual inventory system, are as follows:

1. When Littleton Books returns books with a cost of $400 on May 5, the accounting entry made would be to debit the accounts payable or cash account and credit the inventory account for $400.
2. Subsequently, when Littleton Books sells books for $4,000 on account on May 30, the entry would involve debiting accounts receivable for $4,000 and crediting the revenue account. Concurrently, the cost of goods sold would be debited and inventory credited to reflect the sale of goods from inventory.

These entries involve the basic principles of a perpetual inventory system where inventory and cost of goods sold are adjusted continuously as transactions occur, thus providing up-to-date inventory balances.