5 February: Placed purchase orders on inventory, $10000 worth of boots, credit term 30 days from date of invoice.  16 February: Received inventory and invoice from EDB, invoice number: 00045557,...

5 February: Placed purchase orders on inventory, $10000 worth of boots, credit term 30 days from date of invoice.

 

16 February: Received inventory and invoice from EDB, invoice number: 00045557, invoice date: 10 February, 2008.

Should I make any journal entries for 5 February or 10 February, and what is the journal entry for 16 February?

 

Asked on by calvin85sg

3 Answers | Add Yours

calvin85sg's profile pic

calvin85sg | Student, Undergraduate | (Level 1) Honors

Posted on

Hi, thank you for your help. In addition, it was mentioned the firm uses the weighted average method of valuing inventory & perptual inventory system to record inventory.

So, should the entry should be as follows?

16 Feb

Dr Inventory - Industrial Leather Boots   $10,000

Cr Cash at Bank - EDB                                   $10,000

If so, I would like to ask since the question did not mention that the invoice on 16th Feb was processed, it was merely receieved. Shouldn't there be another recording on 10 March, 30 days from the invoice for payment?

Or should it be
16 Feb
Dr Inventory - Industrial Leather Boots $10,000
Cr Account Payable - EDB                      $10,000

Then, a record of payment on 10 March, 30 days from invoice?

neela's profile pic

neela | High School Teacher | (Level 3) Valedictorian

Posted on

In accounts Journal entries are made when money or money worth of transactions are involved.  Purchase order Does not involve any money Transaction, passing of entry is required on16th February Because of the receipt of the Invoice goods worth $10000. The entry must be

purchase a/c                   Dr.      $10000

EDP a/c                          Cr.      $10000

(Entry passed for the purchase of goods vide Invoice No.00045557, invoice date: 10 February, 2008 )

We should pass the entry on the date of the receipt of the invoice but not on the date of the Invoice.The money or money worth of goods transaction was not there on 10th February as far as the purchaser is concerned.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

Any account entries including journal entries are made to reflect all transaction that involve some transfer of money or equivalent of money's worth or value in any form. Unless there is such transfer there are no accounting entries made..

On February 5, when a purchase order is placed their in no receipt or payment of money or money's worth. Therefore there is no accounting entry required.

When the goods ordered are actually received the company has received money's worth in form of goods supplied. Thus, on February 16, the stock in inventory has inflow of money's worth equal to $10,000. Therefor the material in stock accounts must be debited by this amount. At the same time, the ownership goods has been transferred out of supplier, and in return the supplier becomes entitled to the payment of $ 10,000. To reflect this the supplier account must be credited simultaneously by $10,000. Both these transactions will be dated February 16 in accounts of the purchaser. The date of purchase order, or the invoice has no effect on the date of these transactions.

However, it is worthwhile noting that these transaction in supplier's account will be dated  February 10, crediting their finished goods account and debiting the customer account.

Also note that that the payment terms has no impact in the accounting entries.

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