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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

JOURNALIZING SALES, SALES RETURNS AND ALLOWANCES, AND CASH RECEIPTS Prepare journal entries for the following transactions.

Oct. 5 Sold merchandise on account to B. Farnsby for $280 plus sales tax of 4%.
  8 Sold merchandise on account to F. Preetee for $240 plus sales tax of 4%, with 2/10, n/30 cash discount terms.
  11 F. Preetee returned merchandise purchased on October 8 for $50 plus sales tax for credit.
  17 F. Preetee paid the balance due on her account.
  18 B. Farnsby returned merchandise purchased on October 5 for $60 plus sales tax for credit.
  20 B. Farnsby paid the balance due on his account.

To determine

Journalize the transactions related to sales, sales return and allowances, and cash receipts.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journalize the transactions related to sales, sales return and allowances, and cash receipts.

Transaction on October 5:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
October5Accounts Receivable, BF291.20
Sales280.00
Sales Tax Payable11.20
(Record credit sale)

Table (1)

Description:

  • Accounts Receivable, BF is an asset account. Since sales is made on account, the receivables increased, and an increase in asset is debited.
  • Sales is a revenue account. Since revenues and gains increase equity, equity value is increased, and an increase in equity is credited.
  • Sales Tax Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 1:

Compute sales tax payable amount.

Sales tax payable = Sales×Sales tax percentage= $280×4%= $11.20

Working Note 2:

Compute accounts receivable amount (Refer to Working Note 1 for value of sales tax payable).

Accounts receivable, BF = Sales+Sales tax payable= $280.00+$11.20= $291.20

Transaction on October 8:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
October8Accounts Receivable, FP249.60
Sales240.00
Sales Tax Payable9.60
(Record credit sale)

Table (2)

Description:

  • Accounts Receivable, FP is an asset account. Since sales is made on account, the receivables increased, and an increase in asset is debited.
  • Sales is a revenue account. Since revenues and gains increase equity, equity value is increased, and an increase in equity is credited.
  • Sales Tax Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 3:

Compute sales tax payable amount.

Sales tax payable = Sales×Sales tax percentage= $240×4%= $9.60

Working Note 4:

Compute accounts receivable amount (Refer to Working Note 3 for value of sales tax payable).

Accounts receivable, FP = Sales+Sales tax payable= $240.00+$9.60= $249.60

Transaction on October 11:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
October11Sales Returns and Allowances50.00
Sales Tax Payable2.00
Accounts Receivable, FP52.00
(Record merchandise returned)

Table (3)

Description:

  • Sales Returns and Allowances is a contra-revenue account, and contra-revenue accounts decrease the equity value, and a decrease in equity is debited.
  • Sales Tax Payable is a liability account. Since the payable decreased due to returns, the liability decreased, and a decrease in liability is debited.
  • Accounts Receivable, FP is an asset account. Since inventory is returned, amount to be received has decreased, asset account is decreased, and a decrease in asset is credited.

Working Note 5:

Compute sales tax payable amount.

Sales tax payable = Sales returns×Sales tax percentage= $50×4%= $2.00

Working Note 6:

Compute accounts receivable amount (Refer to Working Note 5 for value of sales tax payable).

Accounts receivable, FP = Sales returns+Sales tax payable= $50.00+$2.00= $52.00

Transaction on October 17:

DateAccount Titles and ExplanationsPost

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