33 Analyze and also Record Transactions for the Sale of Merchandise Using the Perpetual Inventory System

The following example transactions and subsequent journal entries for merchandise sales are recognized using a perpetual inventory system. The routine inventory system recognition of these instance transactions and also corresponding journal entries are displayed in Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the Periodic Inventory System.

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Basic Analysis of Sales Transaction Journal Entries

Let’s continue to follow California Company Solutions (CBS) and also their sales of electronic hardware packages to service customers. As previously proclaimed, each package contains a desktop computer computer, tablet computer system, landline telephone, and a 4-in-1 printer. CBS sells each hardware package for $1,200. They offer their customers the alternative of purchasing added individual hardware items for every electronic hardware package purchase. (Figure) lists the assets CBS sells to customers; the prices are per-package, and also per unit.


In the first entry, Cash increases (debit) and also Sales boosts (credit) for the selling price of the packages, $12,000 ($1,200 × 10). In the second enattempt, the price of the sale is recognized. COGS rises (debit) and Merchandise Inventory-Packeras decreases (credit) for the cost of the packperiods, $6,200 ($620 × 10).

On July 7, CBS sells 20 desktop computer computers to a customer on credit. The crmodify terms are n/15 through an invoice date of July 7. The complying with entries take place.


Accounts Receivable decreases (credit) and Cash boosts (debit) for the complete amount owed. The credit terms were n/15, which is net due in 15 days. No discount was available via this transaction; therefore the complete payment of $15,000 occurs.

Sales Discount Transactivity Journal Entries

On August 1, a customer purchases 56 tablet computer systems on crmodify. The payment terms are 2/10, n/30, and also the invoice is dated August 1. The following entries occur.


Since the customer paid on August 10, they made the 10-day window and also got a discount of 2%. Cash boosts (debit) for the amount paid to CBS, much less the discount. Sales Discounts boosts (debit) for the amount of the discount ($16,800 × 2%), and also Accounts Receivable decreases (credit) for the original amount owed, before discount. Sales Discounts will alleviate Sales at the finish of the period to produce net sales.

Let’s take the very same example sale via the same crmodify terms, yet now assume the customer paid their account on August 25. The adhering to entry occurs.


Sales Retransforms and Allowances Transaction Journal Entries

On September 1, CBS marketed 250 landline telephones to a customer who paid through cash. On September 3, the customer discovers that 40 of the phones are the wrong color and also retransforms the phones to CBS in exchange for a full remoney. CBS determines that the changed merchandise have the right to be remarketed and also retransforms the merchandise to inventory at its original cost. The adhering to entries occur for the sale and also subsequent rerotate.


Because the customer already paid in complete for their purchase, a complete cash refund is issued on September 3. This boosts Sales Returns and also Allowances (debit) and decreases Cash (credit) by $6,000 (40 × $150). The second entry on September 3 retransforms the phones ago to inventory for CBS because they have established the merchandise is in sellable condition at its original expense. Merchandise Inventory–Phones rises (debit) and also COGS decreases (credit) by $2,400 (40 × $60).

On September 8, the customer discovers that 20 more phones from the September 1 purchase are slightly damaged. The customer decides to save the phones yet receives a sales allowance from CBS of $10 per phone. The adhering to enattempt occurs for the allowance.


In the first entry on October 1, Accounts Receivable increases (debit) and Sales boosts (credit) by $19,250 (55 × $350), the sales price of the printers. Accounts Receivable is offered instead of Cash bereason the customer purchased on crmodify. In the second entry, COGS increases (debit) and Merchandise Inventory–Printers decreases (credit) by $5,500 (55 × $100), the price of the sale.


Sales Retransforms and Allowances boosts (debit) and Accounts Receivable decreases (credit) by $300 (5 × $60). A reduction to Accounts Receivable occurs because the customer has yet to pay their account on October 10. CBS does not have to think about the condition of the merchandise or rerevolve it to their inventory bereason the customer keeps the merchandise.

On October 15, the customer pays their account in complete, less sales returns and allowances. The following payment enattempt occurs.


Record the journal entries for the following sales transactions of a retailer.

May 10Sold $8,600 of merchandise on crmodify (expense of $2,650), through terms 5/10, n/30, and invoice dated May 10.
May 13The customer changed $1,250 worth of slightly damaged merchandise to the retailer and also obtained a full remoney. The retailer changed the merchandise to its inventory at a expense of $380.
May 15The customer discovered some merchandise were the wrong color and also obtained an allowance from the retailer of $230.
May 20The customer phelp the account in full, less the rerevolve and also allowance.

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Key Concepts and Summary

A customer deserve to pay with cash or on crmodify. If paying on crmodify rather of cash, Accounts Receivable boosts rather than Cash; Sales increases in both instances. A company need to likewise record the cost of sale entry, wbelow Merchandise Inventory decreases and COGS boosts.If a customer pays for merchandise within the discount home window, the firm would delittle Cash and Sales Discounts while crediting Accounts Receivable. If the customer pays outside the discount home window, the company debits Cash and also credits Accounts Receivable only.If a customer retransforms merchandise before remitting payment, the firm would debit Sales Returns and Allowances and crmodify Accounts Receivable or Cash. The company may return the merchandise to their inventory by debiting Merchandise Inventory and crediting and enhancing COGS.If a customer obtains an allowance for damaged merchandise prior to remitting payment, the agency would certainly delittle Sales Retransforms and Allowances and crmodify Accounts Receivable or Cash. The company does not have to take into consideration the merchandise condition because the customer keeps the merchandise in this instance.