Question

The debits and credits from four related transactions are presented in the following T accounts.

Cash Accounts Payable
(2) 300 (3) 3,920 (1) 20,580
(4) 16,660 (4) 16,660

Inventory
(1) 20,580 (3) 3,920
(2) 300

Describe each transaction.

Answer 1

1. There was a purchase of Inventory on account of goods worth $20,580. This figure was debited to the Inventory account and credited to the Accounts Payable.

2. These were the shipping/freight costs. The $300 was debited to the Inventory as a Carriage inwards and credited to the Cash account.

3. The Creditor/ Payable allowed the company to return $3,920 worth of goods. This was credited from the Inventory account and debited to the Payable account.

4. Paid the Account Payable the remaining balance of $16,660 to settle to account. Balance was credited from the Cash account and debited to the Accounts Payable account.