Question

On April 7, New World Appliances was given an allowance of $1,145 by Upscale Kitchens, which issued Credit Memorandum 112. The allowance was for scratches on stoves that were originally purchased on Invoice 911 dated March 20. Prepare the general journal entry that New World Appliances would make for this transaction.

Answer 1

To record the credit memorandum, New World Appliances would debit Sales Returns and Allowances and credit Accounts Receivable, reflecting the allowance for the scratches on the stoves.

Step-by-step explanation:

The student is asking how to record a credit memorandum in the general journal. For New World Appliances, receiving an allowance from Upscale Kitchens for damaged stoves would involve an entry that decreases inventory and accounts receivable.

Journal Entry:

• Account: Sales Returns and Allowances
• Debit: $1,145
• Account: Accounts Receivable
• Credit: $1,145

The debit entry increases Sales Returns and Allowances, which is a contra-revenue account and decreases the company's net income. The credit entry to Accounts Receivable reflects the reduction in the amount owed by the company.