Question

Recording sales, purchases, shipping, and returns—buyer and seller LO P1, P2

Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions.
May
11 Sydney accepts delivery of $29,500 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cost Troy $19,765. Sydney pays $590 cash to Express Shipping for delivery charges on the merchandise.
12 Sydney returns $1,200 of the $29,500 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $804.
20 Sydney pays Troy for the amount owed. Troy receives the cash immediately.
(Both Sydney and Troy use a perpetual inventory system and the gross method.)
1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.
2. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.

Answer 1

Sydney Retailing (buyer) and Troy Wholesalers (seller)

Sydney Retailing Records:

May 11:

Debit Inventory $29,500

Credit Troy (Accounts Payable) $29,500

To record the purchase of merchandise, terms 3/10, n/90, FOB shipping point.

Debit Freight-in on Inventory $590

Credit Cash Account $590

To record the payment of freight.

May 12

Debit Troy (Accounts Payable) $1,200

Credit Inventory $1,200

To record the return of goods to Troy,

May 20:

Debit Troy (Accounts Payable) $28,300

Credit Cash Account $28,300

To record the payment to Troy on account.

Troy Wholesalers Records:

May 11:

Debit Sydney Retailing (Accounts Receivable) $29,500

Credit Sales Revenue $29,500

To record the sale of merchandise, terms 3/10, n/90, FOB shipping point.

Debit Cost of Goods Sold $19,765

Credit Inventory $19,765

To record the cost of goods sold.

May 12

Debit Sales Returns $1,200

Credit Sydney Retailing (Accounts Receivable) $1,200

To record the return of goods.

Debit Inventory $804

Credit Cost of Goods Sold $804

To record the return of goods.

May 20:

Debit Cash Account $28,300

Credit Sydney Retailing (Accounts Receivable) $28,300

To record the receipt of cash on account.

Step-by-step explanation:

The records kept by Sydney (the buyer) and Troy (the seller) look alike in some ways but are recorded in opposite directions. However, there are minor differences that reflect the cost effects of goods and financial value exchanging hands between the two trading parties.