CASH ND RECEIVABLES.ppt

* Part I. Assume that on May 19, Eddy, Inc. received a check in full payment of the sale made on May 10. Prepare the journal entry to record the cash receipt if Eddy uses: (a) the gross method. (b) the net method. Part II. The customer has made payment within the 10-day discount period, so the amount remitted is $4,950. Using the gross method, Eddy would record the receipt with a debit to cash for $4,950, a debit to sales discount for $50, and a credit to accounts receivable for $5,000. Using the net method, Eddy would record the receipt with a debit to cash and a credit to accounts receivable for $4,950. Now, let’s look at the entries when Eddy receives payment from the customer after the discount period. * Part I. Instead of the payment on May 19, now assume that Eddy, Inc. received a check on May 31, in full payment of the sale made on May 10. Prepare the journal entry to record the cash receipt if Eddy uses: (a) the gross method. (b) the net method. Part II. The customer has made payment after the 10-day discount period, so the amount remitted is $5,000. Using the gross method, Eddy would record the receipt with a debit to cash and a credit to accounts receivable for $5,000. Using the net method, Eddy would record the receipt with a debit to cash for $5,000, a credit to interest revenue for $50, and a credit to accounts receivable for $4,950. * When merchandise is returned by customers for a refund or for a credit for future purchases, the situation is called a sales return. Sales allowances occur when customers return faulty merchandise and are given a reduction in price to entice them to keep the merchandise. Let’s look at an example. * Part I. On June 1, a customer of LarCo returns $750 of merchandise. The merchandise had been purchased on account and the customer had not yet paid. LarCo uses the periodic method to account for inventory. Record the journal entry for the return of merchandise. Part II. We debit sales returns and credit a