Concept explainers
1 (a)
Journalize entries to record accounts receivable and sales at gross price.
1 (a)
Explanation of Solution
Accounts receivable:
Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.
Journal entry is a “set of economic events” which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains
Record the journal entry:
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
February 1 | Accounts receivable | 13,000 | |
Sales revenue | 13,000 | ||
( To record the sale on February 1) |
Table (1)
- Accounts receivable is an asset and it is increased. Therefore, debit accounts receivable account by $13,000.
- Sales revenue is a component of
stockholders equity and it is increased. Therefore, credit sales revenue account by $13,000.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
February 10 | Cash (2) | 7,425 | |
Sales revenue (1) | 75 | ||
Accounts receivable | 7,500 | ||
( To record payment received) |
Table (2)
- Cash is an asset and it is increased. Therefore, debit cash account by $7,425.
- Sales revenue is a component of stockholders’ equity and it is decreased. Therefore, debit sales revenue account by $75.
- Accounts receivable is an asset and it is decreased. Therefore, credit accounts receivable account by $7,500.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
March 1 | Cash (3) | 5,500 | |
Accounts receivable | 5,500 | ||
( To record payment received) |
Table (3)
- Cash is an asset and it is increased. Therefore, debit cash account by $5,500.
- Accounts receivable is an asset and it is decreased. Therefore, credit accounts receivable account by $5,500.
Working notes:
(1) Calculate the amount of sales revenue on February 10:
(2) Calculate the amount of cash received on February 10:
(3) Calculate the amount of cash received on March 1:
Note: In this case,
1 (b)
Journalize entries to record accounts receivable and sales at net price.
1 (b)
Explanation of Solution
Record the journal entry:
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
February 1 | Accounts receivable | 12,870 | |
Sales revenue (4) | 12,870 | ||
( To record sales on February 1) |
Table (4)
- Accounts receivable is an asset and it is increased. Therefore, debit accounts receivable account by $12,870.
- Sales revenue is a component of stockholders equity and it is increased. Therefore, credit sales revenue account by $12,870.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
February 10 | Cash (5) | 7,425 | |
Accounts receivable | 7,425 | ||
( To record payment received) |
Table (5)
- Cash is an asset and it is increased. Therefore, debit cash account by $7,425.
- Accounts receivable is an asset and it is decreased. Therefore, credit accounts receivable account by $7,425.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
March 1 | Cash (6) | 5,500 | |
Sales revenue (7) | 55 | ||
Accounts receivable (8) | 5,445 | ||
( To record payment received) |
Table (6)
- Cash is an asset and it is increased. Therefore, debit cash account by $5,500
- Sales revenue is a component of stockholders’ equity and it is decreased. Therefore, debit sales revenue account by $55.
- Accounts receivable is an asset and it is decreased. Therefore, credit accounts receivable account by $5,445.
Note: In this case,
Working notes:
(4) Calculate the amount of sales revenue on February 1:
(5) Calculate the amount of cash received on February 10:
(6) Calculate the amount of cash received on March 1:
(7) Calculate the amount of sales revenue on March 1:
(8) Calculate the amount of accounts receivable on March 1:
Note: In this case,
2.
State the Corporation E’s annual interest rate at which the customers fails to take the cash discount.
2.
Explanation of Solution
Customers’ of Corporation E are incurring 18.25% of annual interest rate with a rate of discount at 1%, assuming a 365-day year by taking 20 days extra
3.
State the method of recording accounts receivable that is theoretically superior.
3.
Explanation of Solution
- Recording receivables at the net price is the “theoretically superior method” since; the receivable are valued at the net realizable value and it records sales revenue at the amount that a company anticipates to be allowed.
- If receivables are stated at their gross price, then sales revenue will be overstated.
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Chapter 6 Solutions
Intermediate Accounting: Reporting and Analysis (Looseleaf)
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