Question

On June 30, Petrov Co. has \(128,700 of accounts receivable. Prepare journal entries to record the following selected July transactions. Also prepare any footnotes to the July 31 financial statements that result from these transactions. (The company uses the perpetual inventory system.)

July 4 Sold \)7,245 of merchandise (that had cost \(5,000) to customers on credit.

9 Sold \)20,000 of accounts receivable to Main Bank. Main charges a 4% factoring fee.

17 Received \(5,859 cash from customers in payment on their accounts.

27 Borrowed \)10,000 cash from Main Bank, pledging $12,500 of accounts receivable as security for the loan.

Short answer

Merchandise or inventory is the product an organization offers to its customers for sale in the market.

Step-by-step solution

Journal entries

Date	Particulars	Debit	Credit
Jul 4	Accounts receivables	$7,245
	Sales		$7,245
	(To record the accounts receivables)
Jul 4	Cost of goods sold	$5,000
	Merchandise		$5,000
	(To record the cost of goods sold)
Jul 9	Cash	$19,200
	Factoring charges	$800
	Accounts receivables		$20,000
	(To record the factoring charges)
Jul 17	Cash	$5,859
	Accounts receivables		$5,859
	(To record the cash collection)
Jul 27	Cash	$10,000
	Accounts receivables		$10,000
	(To record the cash)
July 27	No entry required

Footnotes to the July 31

The selling and the pledging accounts receivables of the Petrov Co. will require the preparation of footnotes as of July 31 to further report the amounts in the company's financial statement.