Question

CC6-1 Accounting for Merchandising Operations [LO 6-4, LO 6-5]

Nicole's Getaway Spa (NGS) has been so successful that Nicole has decided to expand her spa by selling merchandise. She sells things such as nail polish, at-home spa kits, cosmetics, and aromatherapy items. Nicole uses a perpetual inventory system and is starting to realize all of the work that is created when inventory is involved in a business. The following transactions were selected from among those completed by NGS in August.

Aug. 2	Sold 10 items of merchandise to Salon World on account at a selling price of $8,000 (total); terms 2/10, n/30. The goods cost NGS $5,200.
Aug. 3	Sold 5 identical items of merchandise to Cosmetics R Us on account at a selling price of $4,700 (total); terms 2/10, n/30. The goods cost NGS $3,525.
Aug. 6	Cosmetics R Us returned one of the items purchased on August 3. The item could still be sold by NGS in the future and credit was given to the customer.
Aug. 10	Collected payment from Salon World, fully paying off the account balance.
Aug. 20	Sold two at-home spa kits to Meghan Witzel for $1,700 cash. The goods cost NGS $544.
Aug. 22	Cosmetics R Us paid its remaining account balance in full. 1. Prepare journal entries for each transaction. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

1) Journal Entries (Amounts in $)

Date	Account Titles and Explanation	Debit	Credit
Aug. 2	Accounts Receivable-Salon World	8,000
	Sales Revenue		8,000
	(To record goods sold on account)
Aug. 2	Cost of good sold	5,200
	Merchandise Inventory		5,200
	(To record the cost of good sold)
Aug. 3	Accounts Receivable-Cosmetics R	4,700
	Sales Revenue		4,700
	(To record goods sold on account)
Aug. 3	Cost of good sold	3,525
	Merchandise Inventory		3,525
	(To record the cost of good sold)
Aug. 6	Sales Returns and Allowances ($4,700/5 items)	940
	Accounts Receivable-Cosmetics R		940
	(To record the return of 1 item out of 5 items sold)
Aug. 6	Merchandise Inventory ($3,525/5 items)	705
	Cost of goods sold		705
	(To record the cost of item return)
Aug. 10	Cash	7,840
	Discount Allowed ($8,000*2%)	160
	Accounts Receivable-Salon World		8,000
Aug. 20	Cash	1,700
	Sales Revenue		1,700
	(To record cash sales)
Aug. 20	Cost of goods sold	544
	Merchandise Inventory		544
	(To record the cost of goods sold)
Aug. 22	Cash	3,760
	Accounts Receivable-Cosmetics R ($4,700 - $940)		3,760
	(To record the cash received from accounts receivable)