Chapter 7
Inventory: Merchandising Transactions
176
Journal
Page 1
date
account title and explanation
debit Credit
2016
Jan 15 Accounts Receivable
15,000
Sales Revenue
15,000
To record product sales on account
Jan 15 Cost of Goods Sold
7,200
Inventory
7,200
Sold inventory to a customer
________________
fIGuRe 7.6
When inventory is sold by a merchandiser, it can no longer be regarded as an asset by the company
because it is now owned by the customer.This is the reason for the second journal entry in Figure
7.6. In a service company, this entry is not recorded because assets are not sold in the ordinary
course of business.
Purchase Returns
Goods often need to be returned for reasons such as incorrect
product, over-shipments, or inferior product quality.
When the manager of Tools 4U examined the new shipment
of inventory from the company’s supplier, Roofs and More, he
noticed that there were some damaged goods in the shipment.
The damaged goods cost $500. The goods were returned and a
journal entry for $500 was recorded to reverse part of the original
purchase transaction as shown in Figure 7.7.
No change in owner’s equity
BALANCE SHEET
INVENTORY
– $500 CR
CURRENT ASSETS
CASH
PREPAID
EXPENSES
PROPERTY, PLANT
& EQUIPMENT
ACCOUNTS
RECEIVABLE
LONG-TERM
ASSETS
ACCOUNTS
PAYABLE
– $500 DR
CURRENT LIABILITIES
UNEARNED
REVENUE
BANK LOAN
OWNER’S EQUITY
OWNER’S
CAPITAL
OWNER’S
DRAWINGS
LONG-TERM
LIABILITIES
Journal Page 1
date
2016
account title and explanation
debit Credit
Jan 2 Accounts Payable
500
Inventory
500
Goods returned to Roofs and More
______________
fIGuRe 7.7
