Question

Appendix 1: Gross and net methods for sales discounts
The following were selected from among the transactions completed by Strong Retail Group during August of the current year:
Aug. 5. Sold merchandise on account to M. Quinn, $7,500, terms 2/10, n/30. The
cost of the merchandise sold was $4,200.
9. Sold merchandise on account to R. Busch., $4,000, terms 1/10, n/30. The
cost of the merchandise sold was $2,100.
15. Received payment on account for the sale of August 5 less the discount.
20. Sold merchandise on account to S. Mooney, $6,000, terms n/eom. The
cost of the merchandise sold was $3,300.
25. Received payment on account for the sale of August 9. 31.Received
payment on account for the sale of August 20.
A. Journalize the August transactions using the gross method of recording sales discounts.
Aug. 5 Accounts Receivable-M. Quinn 7,500
Sales 7,500
Cost of Goods Sold 4,200
Inventory 4,200
Accounts Receivable-R. Busch 4,000
Sales 4,000
Cost of Goods Sold 2,100
B. Journalize the August transactions using the net method of recording sales discounts.

Answer 1

Answer:

A.            Journal Entries under Gross Method

Date        Account Titles and Explanation         Debit        Credit

Aug. 5    Accounts Receivable M. Quinn        $7,500  

                      Sales Revenue                                              $7,500

                (To record the sales made on account)

              Cost of Goods Sold                            $4,200  

                       Inventory                                                       $4,200

                (To record the cost of goods sold)  

Aug. 9       Accounts Receivable R. Busch        $4,000

                      Sales Revenue                                               $4,000

               (To record the sales made on account)  

                Cost of Goods Sold                             $2,100  

                        Inventory                                                        $2,100

               (To record the cost of goods sold)  

Aug. 15     Cash                                                     $7,350

                ($7,500 - $150)

                Sales Discounts                                    $150

                 ($7,500*2/100)

                         Accounts Receivable M. Quinn                    $7,500

         (To record the payment received for credit sales with discount)  

Aug. 20   Accounts Receivable S. Mooney         $6,000

                   Sales Revenue                                                     $6,000

               (To record the sales made on account)

              Cost of Goods Sold                                 $3,300  

                    Inventory                                                               $3,300

               (To record the cost of goods sold)

Aug. 25    Cash                                                        $4,000  

                        Accounts Receivable R. Busch                     $4,000

  (To record the payment received for credit sales without discount)  

Aug. 31       Cash                                                        $6,000

                        Accounts Receivable S. Mooney                    $6,000

  (To record the payment received for credit sales with no discount)

B.                    Journal Entries under Net Method

Date        Account Titles and Explanation          Debit      Credit

Aug. 5 Accounts Receivable M. Quinn        $7,350

               ($7,500 - [$7,500*2/100])

                       Sales Revenue                                               $7,350

              (To record the sales made on account)  

                 Cost of Goods Sold                             $4,200  

                             Inventory                                                   $4,200

              (To record the cost of goods sold)

Aug. 9     Accounts Receivable R. Busch              $3,960

               ($4,000 - [$4,000*1/100])

                       Sales Revenue                                                $3,960

              (To record the sales made on account)

              Cost of Goods Sold                                  $2,100  

                       Inventory                                                          $2,100

                (To record the cost of goods sold)

Aug. 15    Cash                                                         $7,350  

                       Accounts Receivable M. Quinn                        $7,350

      (To record the payment received for credit sales with discount)  

Aug. 20    Accounts Receivable S. Mooney          $6,000

                         Sales Revenue                                                 $6,000

      (To record the sales made on account)  

                Cost of Goods Sold                                 $3,300  

                           Inventory                                                        $3,300

      (To record the cost of goods sold)

Aug. 25    Cash                                                           $4,000

               ($3,960 + $40)

                        Accounts Receivable R. Busch                        $3,960

                        Sales Discount Forfeited                                  $40

                        ($4,000*1/100)

(To record the payment received for credit sales without discount)  

Aug. 31    Cash                                                              $6,000

                         Accounts Receivable S. Mooney                        $6,000

   (To record the payment received for credit sales with no discount)