Chapter 7
Inventory: Merchandising Transactions
183
Owner’s equity decreases by $209
SALES RETURNS & ALLOWANCES
INCOME STATEMENT
GROSS PROFIT
OPERATING EXPENSES
SALES REVENUE
COST OF GOODS SOLD
BALANCE SHEET
OPERATING INCOME (LOSS)
CURRENT ASSETS
CASH
INVENTORY
PREPAID
EXPENSES
PROPERTY, PLANT
& EQUIPMENT
ACCOUNTS
RECEIVABLE
LONG-TERM
ASSETS
ACCOUNTS
PAYABLE
BANK LOAN
OWNER’S EQUITY
CURRENT LIABILITIES
UNEARNED
REVENUE
LONG-TERM
LIABILITIES
– $10,450 CR
+ $209 DR
OWNER’S
CAPITAL
OWNER’S
DRAWINGS
+ $10,241 DR
Journal
Page 1
date
2016
account title and explanation debit Credit
Jan 20 Cash
10,241
Sales Discounts
209
Accounts Receivable
10,450
Payments received from customer
less discount
______________
fIGuRe 7.17
The $209 discount is recorded as a debit in the
sales discounts
account. Sales discounts is another
contra-revenue account which increases with a debit and decreases with a credit.
If the customer decides not to pay the amount owing within the
discount period, then it is not entitled to take the discount that
Tools 4U offers. Instead, the customer must pay the full amount
of $10,450 within 30 days of the sale. The receipt of cash from
the customer is just like receiving cash from any customer that
owes the company money. Cash increases and accounts receivable
decreases.The entry is shown in Figure 7.18. Notice that the date
is more than 10 days past the date of the sale.
No change in owner’s equity
BALANCE SHEET
INVENTORY
CURRENT ASSETS
CASH
PREPAID
EXPENSES
PROPERTY, PLANT
& EQUIPMENT
ACCOUNTS
RECEIVABLE
LONG-TERM
ASSETS
ACCOUNTS
PAYABLE
+ $10,450 DR
– $10,450 CR
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
feb 2 Cash
10,450
Accounts Receivable
10,450
Payment received from customer
______________
fIGuRe 7.18
