Hey all! I hope everyone is having a very productive Sunday evening!
I am a little confused on this questions, specifically the goods, which were purchased and received in December, but not paid for until January. We are adding the amount back to the ending A/P balance because we did not record/pay the invoice until January. I understand that the original entry would be:
Dr: Goods
Cr: Payable
When we pay:
Dr: Payable
Cr: Cash
The question is HOW do you record the liability without having an invoice? A purchase order? I am in the industry where NO transaction will enter Payable unless there is an Invoice so I am just trying to understand the process. I got the answer wrong because I did not increase the YE payable balance for this item so I am frustrated that I stumbled on one of the easiest topics.
Question CPA-00617
Black Corp.'s accounts payable at December 31 Year 1, totaled $900,000 before any necessary year-end adjustments relating to the following transactions:
On December 27, Year 1, Black wrote and recorded checks to creditors totaling $400,000 causing an overdraft of $100,000 in Black's bank account at December 31, Year 1. The checks were mailed out on January 10, Year 2.
On December 28, Year 1, Black purchased and received goods for $153,061, terms 2/10, n/30. Black records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, Year 2.
Goods shipped F.O.B. destination on December 20, Year 1 from a vendor to Black were received January 2, Year 2. The invoice cost was $65,000.
At December 31, Year 1, what amount should Black report as total accounts payable?
a. $1,153,061
b. $1,515,000
c. $1,450,000
d. $1,053,061
Explanation
Choice “b” is correct. $1,450,000 accounts payable at 12/31/Year 1.
Accounts Payable Balance per books before y/e adjustments – 900,000
Add: Checks written on 12/27/Year 1 (which reduced A/P) but not mailed until 1/10/Year 2 – 400,000
Add: Goods received 12/28/Year 1 but not recorded until 1/3/Year 2 at amount net of 2% discount ($153,061 x 98%) – 150,000
No entry for goods shipped FOB destination on 12/20/Year 1 but not received until 1/2/Year 2
Total accounts payable at 12/31/Year 1 1,450,000
AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD
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