Question

Presented below are transactions related to Novak Corp.

1.On December 3, Novak Corp. sold $644,700 of merchandise on account to Sarasota Co., terms 4/10, n/30, FOB shipping point. The cost of the merchandise sold was $363,600.
2.On December 8, Sarasota Co. was granted an allowance of $27,400 for merchandise purchased on December 3.
3.On December 13, Novak Corp. received the balance due from Sarasota Co.

Required:
Prepare the journal entries to record these transactions on the books of Novak Corp. using a perpetual inventory system.

Answer 1

1) December 3, 202x, merchandise sold on account to Sarasota Corp., credit terms 4/10, n/30, FOB shipping point.

Dr Accounts receivable 644,700

Cr Sales revenue 644,700

Dr Cost of goods sold 363,600

Cr Merchandise inventory 363,600

2) December 8, 202x, sales allowance granted to Sarasota Corp.

Dr Sales returns and allowances 27,400

Cr Accounts receivable 27,400

Sales returns and allowances is a contra revenue account that decreases sales revenue.

3) December 13, 202x, invoice collected from Sarasota Corp.

Dr Cash 592,608

Dr Sales discounts 24,692

Cr Accounts receivable 617,300

Sales discounts is another contra revenue account that decreases sales revenue.