Question

On 4 March, Cole company sells office supplies to a customer for $60000. Terms of the sale are 1/15, n/30. On 10 March the customer returns $5000 of the goods. The customer pays on 15 March.

Prepare all journal entries to record the sale, its return and the collection of the receivable. Ignore any effects on inventory or cost of goods sold.

Answer 1

Accounts receivable are the customers of a company that have purchased goods or received services on credit. Accounts receivable are assets from which the company has the right to receive payments.

 

Present journal entries to record sale, return and receipt of payment from account receivable:

Record sale transaction:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
March 4	Accounts Receivable		60,000
	Sales Revenue			60,000
	(To record sales revenue)

 

Accounts receivable is an asset and its balance are increasing, so it is debited. Sales revenue is an income and its balance are increasing, so it is credited.

 

 

Record sales return and allowances: 

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
March 10	Accounts Receivable		5,000
	Sales Revenue			5,000
	(To record sales revenue)

 

Sales return and allowance are contra income and its balance are increasing, so it is debited. Accounts receivable is an asset and its balance are decreasing, so it is credited.

 

Record receipt from account receivables after allowing discount:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
March 15	Accounts Receivable		55,000
	Sales Revenue			55,000
	(To record sales revenue)

 

Cash is an asset and its balance are increasing, so it is debited. Sales discount is an expense and its balance are increasing, so it is debited. Accounts receivable is an asset and its balance are decreasing, so it is credited.

 

Working Note:

Compute sales discount:

Sales Discount = Accounts Receivable × Discount Rate

                          = $55,000 × 1%

                          = $550