Question

Telfer Co. uses the gross method to record sales made on credit. On July 1, 2014, Telfer and its customer agreed to the details for sales of $75,000 with terms 2/10 n/30. On July 2, 2014, Telfer shipped the goods to its customers. On July 7, 2014, the customer received the goods from Telfer. On July 9, 2014, Telfer received $41,500 of the A/R from the July 1 sale. On July 25, 2014, Telfer received the balance from the customer. Prepare the required journal entries for Telfer Co. Be sure to include alternative journal entries given the potential shipping scenarios.

Answer 1

Answer:

July 7, 2014

Dr. Customer Account $75,000

Cr. Sales                       $75,000

July 9, 2014

Dr. Cash                           $41,500

Dr.  Discount Expenses  $830

Cr. Customers Account  $42,330

July 25, 2014

Dr. Cash                           $32,670

Cr. Customers Account  $32,670

Explanation:

Revenue recognition concept of accounting requires that the Sales should be recorded when the goods are delivered to the customer. In this question the goods are received by the customer on July 7, 2014, so sales is recorded on this date.

Term 2/10, n/30 means there is a discount of 2% is available on payment of due amount within discount period of 10 days after sale and net credit period of 30 days.

As the $41,5000 is paid within discount period, so discount will be given to customer

Discount  = $41,500 x 2% = $830

Amount Due = $75,000 - $41,500 - $830 = $32,670

$32,670 is received after discount period, so there is no discount on this payment.