Question

Company X is located in the commercial sector of Trinidad and Tobago and has been operating from 1992. The company purchased office supplies from Florida Distributors Co. Ltd on May 12, 2016 that valued US$50,000.00. Company X pays US$20,000.00 by cash on May 31, 2016, US$25,000.00 by cheque on June 2, 2016, and then settled its bill by transferring the balance from its bank account directly into the bank account of the supplier on June 3, 2016.

1. Record the transactions in the books of Company X using the cash basis?

Answer 1

Under the cash basis of accounting, the entries are recorded or journalised only when the cash flows out of or in to the organisation. This means that the transaction would be recorded only when there is an exchange of cash for something. Therefore, the purchase entry of office supplies on May 12, 2016 would not be recorded because there is not exchange of cash in it, although, the supplies are purchased.

So we have the entries as follows:

May 31, 2016 Office Supplies A/c DR. $ 20,000.00

To Cash A/c CR. $ 20,000.00

(Being office supplies purchased in cash)

June 2, 2016 Office Supplies A/c DR. $ 25,000.00

To Bank A/c CR. $ 25,000.00

(Being office supplies purchased through check)

June 3, 2016 Office Supplies A/c DR. $ 5,000.00

To Bank A/c CR. $ 5,000.00

(Being office supplies purchased through bank transfer)