Question
Purchase-related transactions
The debits and credits from four related transactions, (1) through (4), are presented in the following T accounts. Assume that the freight terms were FOB shipping point and that the credit terms were 1/10, n/30.
Cash
Transaction Debit amount Transaction Credit amount
(2) 150
(4) 11,880
Accounts Payable
Transaction Debit amount Transaction Credit amount
(3) 2,000 (1) 14,000
(4) 12,000
Inventory
Transaction Debit amount Transaction Credit amount
(1) 14,000 (3) 2,000
(2) 150 (4) 120
a. Describe each transaction.
1. fill in the blank 1 of 4
2. fill in the blank 2 of 4
3. fill in the blank 3 of 4
4. fill in the blank 4 of 4
The debits and credits from four related transactions, (1) through (4), are presented in the following T accounts. Assume that the freight terms were FOB shipping point and that the credit terms were 1/10, n/30.
Cash
Transaction Debit amount Transaction Credit amount
(2) 150
(4) 11,880
Accounts Payable
Transaction Debit amount Transaction Credit amount
(3) 2,000 (1) 14,000
(4) 12,000
Inventory
Transaction Debit amount Transaction Credit amount
(1) 14,000 (3) 2,000
(2) 150 (4) 120
a. Describe each transaction.
1. fill in the blank 1 of 4
2. fill in the blank 2 of 4
3. fill in the blank 3 of 4
4. fill in the blank 4 of 4
Answers
GPT-4o mini
Below is a description of each transaction based on the provided debits and credits.
**1. Purchase of Inventory on Account**
Transaction (1): The company purchased inventory worth **$14,000** on account (credit transaction), increasing Accounts Payable and Inventory.
**2. Payment of Freight Cost on Purchases**
Transaction (2): The company paid **$150** in cash for freight costs associated with the inventory purchase. This cost is debited to Inventory because the freight is part of the total cost of inventory (FOB shipping point).
**3. Return of Inventory**
Transaction (3): The company returned defective inventory worth **$2,000**, which reduces both Inventory (credit) and Accounts Payable (debit) as the seller needs to adjust the amount owed.
**4. Payment of Accounts Payable**
Transaction (4): The company made a cash payment of **$11,880** to settle its accounts payable, which includes the purchase amount after considering the return and applicable cash discount (1% of $12,000). This transaction debits Accounts Payable and credits Cash.
This breakdown summarizes each transaction through the lenses of the T accounts provided.
**1. Purchase of Inventory on Account**
Transaction (1): The company purchased inventory worth **$14,000** on account (credit transaction), increasing Accounts Payable and Inventory.
**2. Payment of Freight Cost on Purchases**
Transaction (2): The company paid **$150** in cash for freight costs associated with the inventory purchase. This cost is debited to Inventory because the freight is part of the total cost of inventory (FOB shipping point).
**3. Return of Inventory**
Transaction (3): The company returned defective inventory worth **$2,000**, which reduces both Inventory (credit) and Accounts Payable (debit) as the seller needs to adjust the amount owed.
**4. Payment of Accounts Payable**
Transaction (4): The company made a cash payment of **$11,880** to settle its accounts payable, which includes the purchase amount after considering the return and applicable cash discount (1% of $12,000). This transaction debits Accounts Payable and credits Cash.
This breakdown summarizes each transaction through the lenses of the T accounts provided.