Question

Turnadot & Sons is a small wholesaler of decorative cast iron objects. The following events, related to a special customer order, occur as described below:
August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of $50 each, including delivery at a future convenient time and location. The customer, with whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and pays a $1,000 deposit for them.
August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters to its warehouse.
September 5, 2015: The customer calls for delivery of the planters, and pays the balance of $7,000 when they arrive at the customer site.
On August 5, 2015, which one of the following accounting entries, related to the $1,000 deposit paid to the supplier for the planters, should be recorded in Turnadot's financial accounting system?
A) Debit the current asset 'advances to suppliers' $1,000; credit cash $1,000
B) Debit cost of goods sold $4,000; credit cash $1,000; credit accounts payable $3,000
C) Debit cost of goods sold $1,000; credit revenues $1,000

Answer 1

Answer:

Turnadot & Sons

Accounting entries for a $1,000 deposit paid to the supplier:

A) Debit the current asset 'advances to suppliers' $1,000; credit cash $1,000

Explanation:

Option B and C are wrong, since it is when Turnadot & Sons receives the planters from its supplier that it can create Inventory account to record the purchase.  Again, the question is discussing the deposit and not the other transaction that occurs alongside the deposit.  With a debit to the current asset 'advances to suppliers' and a credit to the cash account for $1,000, the entry for the deposit is completed.