The following events pertain to Burlington Supply Company for January, 2012. The

Question

The following events pertain to Burlington Supply Company for January, 2012. The company uses the perpetual inventory method. Indicate how each of the events affects the company's financial statements, using the horizontal financial statement model.

1) Jan 3. Purchased $4,000 of merchandise inventory from supplier, Kelly Distributors, Inc. The terms of the purchase: 2/10, n/30 and FOB shipping point.
2) Jan 5. Paid $90 cash for freight to trucking company to have goods shipped from Kelly Distributors, Inc.
3) Jan 7. (a) Sold merchandise for $800 to a customer on account. (b) The merchandise sold had cost $560.
4) Jan 10. Returned $500 (list price) of defective merchandise to Kelly Distributors, Inc.
5) Jan. 11. Paid amount due to Kelly Distributors for merchandise purchased on Jan. 3.
6) Jan. 12. (a) Accepted a return of $150 of the goods sold on Jan. (b) The cost of these goods was $110.

Explanation / Answer

The horizontal analysis of each transaction is as follows:

Increase in Purchase in P& L

Increase in creditor in Balance sheet

3920 WN1

3920

Decresae in Cash in Balance sheet

Increase in frieght expense

90

90

Increase in sale amount in P & L

Increase in account receivable in Balance Sheet

Increase in profits

800

800

240

Decrease in Purchases in P & l

Decrease in creditor in balance sheet

490 WN2

490

Decrease in Cash in balance sheet

Decrease in accounts payable in balance sheet

3430 WN3

3430

Decrease in sale in P & L

Decrease in accounts receivable in Balance sheet

decrease in profits in P & L

150

150

40

WN1: Purchase price of merchandise is 4000-2%of 4000 = 3980 (after availing discount of 2%)

WN2:Return of the merchandise shall also be recorded after deducting discount of 2%

WN3: the pament of account payable will be after deducting the returned goods i.e. $3980-$490 = $3430

Sr. No. Particulars Effect on financial statement Increase/(Decrease) amount 1 Purchase of merchandise

Increase in Purchase in P& L

Increase in creditor in Balance sheet

3920 WN1

3920

2 Payment of cash for frieght

Decresae in Cash in Balance sheet

Increase in frieght expense

90

90

3 Sale of merchandise

Increase in sale amount in P & L

Increase in account receivable in Balance Sheet

Increase in profits

800

800

240

4 Purchase return

Decrease in Purchases in P & l

Decrease in creditor in balance sheet

490 WN2

490

5 Payment to accounts payable

Decrease in Cash in balance sheet

Decrease in accounts payable in balance sheet

3430 WN3

3430

6 Sales return

Decrease in sale in P & L

Decrease in accounts receivable in Balance sheet

decrease in profits in P & L

150

150

40

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