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Harwell Company manufactures automobile tires. On July 15, 2021, the company sold 1,000 tires to the Nixon Car Company for $50 each. The terms of the sale were 2/10, n/30. Harwell uses the gross method of accounting for cash discounts. Required: 1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on July 23, 2021. 2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on August 15, 2021

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mltn1980

Answer:

  • The first entry to the accounting system is:    

Accounts Receivable  $50,000  Debit  

Sales Revenue  $50,000  Credit  

  • At the time of payment in cash.    

Cash                                    $49,000  Debit  

Sales Discount               $1,000  Debit  

Accounts Receivable     $50,000  Credit  

Explanation:

In the gross method for record invoices the company records the invoices at full price, which is the total value of the invoice without considering the corresponding discounts.    

At the time of the sale, the company recorded the full invoice amount.    

The first entry to the accounting system is:    

Accounts Receivable  $50,000  Debit  

Sales Revenue  $50,000  Credit  

The payment condition is 2/10, n/30, which means that if the payment is made before the next 10 days of the invoice date the discount will apply.    

As the invoice was issued on July 15th and the payment was made on July 23th the entry is as follow:    

At the time of payment in cash.    

Cash   $49,000  Debit  

Sales Discount Forfeited  $1,000  Credit  

Accounts Receivable  $50,000  Credit  

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