Question
Orion Trading Ltd. — A Month of Transactions
Orion Trading Ltd. is a merchandising business. Journalize the following transactions for June 2024. Narrations are optional. The company uses the perpetual inventory system.
- Jun 1 — The owner invested 50,000 cash to start the business.
- Jun 2 — Purchased equipment for 12,000, paying 4,000 in cash and signing a note payable for the balance.
- Jun 4 — Purchased merchandise inventory on account for 9,500.
- Jun 7 — Paid the June office rent of 1,800 in cash.
- Jun 10 — Sold goods on account for 14,000. The cost of the goods sold was 8,200. (Record both the sale and the cost.)
- Jun 12 — Purchased office supplies for 650 cash.
- Jun 15 — Paid employee salaries of 3,200 in cash.
- Jun 18 — Collected 9,000 cash from credit customers.
- Jun 20 — Paid 6,000 cash to suppliers on account.
- Jun 24 — Received 2,400 cash in advance for goods to be delivered in July.
- Jun 27 — Paid the utilities bill of 480 in cash.
- Jun 30 — The owner withdrew 1,500 cash for personal use.
- Jun 30 — Recorded depreciation on the equipment for the month, 200.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — Inventories; IFRS 15 — Revenue from Contracts with Customers
Work each transaction from the perspective stated in the question: the same shipment is a purchase to one party and a sale to the other, and the entries are not mirror images because only the seller recognises revenue and cost of sales. Read the credit terms and the freight terms before writing anything.
Common mistakes
- Ignoring the shipping terms — they decide who owns goods in transit and who bears the freight.
- Applying a settlement discount to the gross invoice when returns have already reduced the amount owed.
- Confusing a trade discount, which never enters the records, with a settlement discount, which does.
Further readingIAS 2: costing methods and NRV