Write the journal entries to record the following transactions.
A) Sold merchandise on account, $11,000, terms 2/10, net 30. The cost of merchandise sold was $8,000 (2 entries required).
B) Issued a credit memorandum for $500 to the customer for merchandise sold in A. (2 entries required.) The cost of the merchandise returned was $360.
C) Received the amount due on the invoice in A less the return in B less the discount
A) To record the sale of merchandise on account, with terms 2/10, net 30, and a cost of $8,000, you would make two journal entries:
1) Debit Accounts Receivable - [Customer's Name] for $11,000
Credit Sales Revenue for $11,000
This entry recognizes the revenue from the sale. The debit increases the Accounts Receivable balance, representing the amount the customer owes, while the credit increases the Sales Revenue account.
2) Debit Cost of Goods Sold for $8,000
Credit Inventory for $8,000
This entry records the cost of the merchandise sold. The debit increases the Cost of Goods Sold (an expense account), while the credit decreases the Inventory account.
B) To record the credit memorandum for $500 issued to the customer for merchandise sold in transaction A, with the cost of the merchandise returned being $360, you would also make two journal entries:
1) Debit Sales Returns and Allowances for $500
Credit Accounts Receivable - [Customer's Name] for $500
This entry reduces the amount the customer owes due to the returned merchandise. The debit increases the Sales Returns and Allowances account, which represents the reduction in sales revenue, while the credit decreases the Accounts Receivable balance.
2) Debit Inventory for $360
Credit Cost of Goods Sold for $360
This entry recognizes the cost of the returned merchandise. The debit increases the Inventory account, as the returned items are added back to the inventory, while the credit decreases the Cost of Goods Sold.
C) To record receiving the amount due on the invoice from transaction A, less the return in transaction B, and the discount allowed, you will make a single journal entry:
1) Debit Accounts Receivable - [Customer's Name] for the net amount received
Debit Sales Discount for the discount allowed
Credit Cash for the total amount received
This entry reflects the payment received from the customer. The debit to Accounts Receivable reduces the customer's outstanding balance, the debit to Sales Discount recognizes the discount allowed, and the credit to Cash records the actual cash received.