Prepare Journal Entries for Sales Transactions of TFC Merchandising
What are the sales transactions of TFC Merchandising that need journal entries?
May 1: Sold merchandise for $680, with credit terms n/60. The cost of the merchandise is $440.
May 9: The customer discovers slight defects in some units. TFC gives a price reduction (allowance) and credits the customer’s accounts receivable for $48 to compensate for the defects.
June 4: The customer in the May 1 sale returned $95 of merchandise for full credit. The merchandise, which had cost $58, is returned to inventory.
June 30: Received payment for the amount due from the May 1 sale less the May 9 allowance and June 4 return.
Journal Entries for TFC Merchandising Sales Transactions:
⇒ May 1: To record the sale;
Debit Accounts Receivable: $680
Credit Sales Revenue: $680
To record the cost of merchandise sold:
Debit Cost of Goods Sold: $440
Credit Inventory: $440
⇒ May 9: To record the allowance for the defects;
Debit Sales Returns and Allowances: $48
Credit Accounts Receivable: $48
⇒ June 4: To record the return of merchandise;
Debit Sales Returns and Allowances: $95
Credit Inventory: $58 (Cost of merchandise returned)
Credit Accounts Receivable: $37 (Difference between the cost and sales price)
⇒ June 30: To record the payment received;
Debit Cash: $595 ($680 - $48 - $37)
Credit Accounts Receivable: $595
In recording the sales transactions of TFC Merchandising, journal entries play a crucial role in ensuring accurate accounting. Each step in the sales process, including sales, allowances, returns, and receipt of payment, requires specific entries to reflect the financial impact on the business.
On May 1, when TFC sold merchandise for $680 with credit terms n/60, the journal entries included debiting Accounts Receivable and crediting Sales Revenue. Additionally, the cost of the merchandise sold was recorded by debiting Cost of Goods Sold and crediting Inventory.
Subsequently, on May 9, when the customer discovered defects in the units and received an allowance of $48, the entries involved debiting Sales Returns and Allowances and crediting Accounts Receivable. This adjustment accounted for the reduction in revenue due to the defects.
On June 4, when the customer returned $95 of merchandise from the May 1 sale, the journal entries reflected the return by debiting Sales Returns and Allowances and crediting Inventory for the cost of the returned merchandise. The difference between the cost and sales price was also credited to Accounts Receivable.
Finally, on June 30, when TFC received payment for the May 1 sale less the allowance and return, journal entries were made to debit Cash for the net amount received and credit Accounts Receivable for the payment. These entries ensured accurate tracking of the sales transactions and associated adjustments.
By understanding and correctly executing the journal entries for sales transactions, TFC Merchandising maintains precise financial records and follows generally accepted accounting principles.