Question

Harwell Company manufactures automobile tires. On July 15, 2021, the company sold 1,000 tires to the Nixon Car Company for $50 each. The terms of the sale were 2/10, n/30. Harwell uses the gross method of accounting for cash discounts. Required: 1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on July 23, 2021. 2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on August 15, 2021

Answer 1

• The first entry to the accounting system is:

Accounts Receivable $50,000 Debit

Sales Revenue $50,000 Credit

• At the time of payment in cash.

Cash $49,000 Debit

Sales Discount $1,000 Debit

Accounts Receivable $50,000 Credit

Step-by-step explanation:

In the gross method for record invoices the company records the invoices at full price, which is the total value of the invoice without considering the corresponding discounts.

At the time of the sale, the company recorded the full invoice amount.

The first entry to the accounting system is:

Accounts Receivable $50,000 Debit

Sales Revenue $50,000 Credit

The payment condition is 2/10, n/30, which means that if the payment is made before the next 10 days of the invoice date the discount will apply.

As the invoice was issued on July 15th and the payment was made on July 23th the entry is as follow:

At the time of payment in cash.

Cash $49,000 Debit

Sales Discount Forfeited $1,000 Credit

Accounts Receivable $50,000 Credit