Question
Cedarbrook Traders uses a perpetual inventory system and keeps its ledger in two-sided T-account format. At June 1, 2025 the Accounts Payable account had a credit balance of $7,400 and the Inventory account had a debit balance of $9,000. The following transactions occurred in June.
| Date | Transaction |
|---|
| June 3 | Purchased merchandise on account, $12,000. |
| June 7 | Returned damaged merchandise from the June 3 purchase to the supplier, $900. |
| June 12 | Paid $10,000 cash to suppliers on account. |
| June 18 | Sold merchandise on account. The cost of the goods sold was $8,300 (record only the inventory effect here). |
| June 25 | Purchased merchandise for cash, $2,600. |
Required: Using the T-Account format, post the opening balances (Balance b/d) and the June transactions to the Accounts Payable and Inventory accounts, then balance both accounts off on June 30, 2025 (Balance c/d). Name each posting after the other account involved (e.g. "Cash", "Cost of Goods Sold").
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