Question

Shown below in T-account format are the beginning and ending balances ($ in millions) of both inventory and accounts payable.

Inventory
Beginning balance	155.0
Ending balance	159.7

Accounts Payable
		50.0	Beginning balance
		55.6	Ending balance

Required:
1. Use a T-account analysis to determine the amount of cash paid to suppliers of merchandise during the reporting period if cost of goods sold was $370 million.
2. Prepare a summary entry that represents the net effect of merchandise purchases during the reporting period.

Answer 1

1	Inventory					Cost of Goods Sold	370
	Particular	Amount	Particular	Amount
	Opening Balance	155.00	By Goods Sold	370.00		Opening Balance	155.00
	To Account Payable	374.70				Add: Purchases	X
	(Purchases)		By Closing Balance	159.70		Total Available	155+X
	Total	529.70	Total	529.70		Less: Closing Balance	159.70
						Cost of Goods Sold	(155+X)-159.70
						370	(155+X)-159.70
	Accounts Payable					370	X-4.70
	Particular	Amount	Particular	Amount		X	374.70
	To Payments to Supplier	369.10	By Opening Balance	50.00		Purchases	374.70
	(Balance Figure)		By Inventory	374.70
			(Purchases)
	To Closing Balance	55.60
	Total	424.70	Total	424.70
2	Purchases Account Dr.	374.70
	To Accounts Payable		374.70
	(Being Merchandise Purchased)