Question

Prepare journal entries for the following merchandising transactions of Dollar Store assuming it uses a perpetual inventory system and the gross method.

Nov. 1 Dollar Store purchases merchandise for \(1,500 on terms of 2∕5, n∕30, FOB shipping point, invoice dated November 1.

5 Dollar Store pays cash for the November 1 purchase.

7 Dollar Store discovers and returns \)200 of defective merchandise purchased on November 1, and paid for on November 5, for a cash refund.

10 Dollar Store pays \(90 cash for transportation costs for the November 1 purchase.

13 Dollar Store sells merchandise for \)1,600 with terms n∕30. The cost of the merchandise is \(800.

16 Merchandise is returned to the Dollar Store from the November 13 transaction. The returned items are priced at \)160 and cost $80; the items were not damaged and were returned to inventory.

Short answer

Answer

Both credit and debit sides of the journal amount to$5,926 each.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Revenue Account

The income statement reports all the benefits generated from the sale of products or services in the revenue account, which is reported at the top of the income statement.

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
Nov. 1	Merchandise inventory	1,500
	Account payable		1,500
Nov. 5	Accounts payable	1,500
	Discount received		30
	Cash		1,470
Nov. 7	Cash	196
	Merchandise inventory		196
Nov. 10	Merchandise inventory	90
	Cash		90
Nov. 13	Accounts receivable	1,600
	Sales revenue		1,600
	Cost of goods sold	800
	Merchandise inventory		800
Nov. 16	Sales return and allowance	160
	Accounts receivable		160
	Merchandise inventory	80
	Cost of goods sold		80
		$5,926	$5,926