Question

What might a manager do during the last quarter of a fiscal year if she wanted to decrease current annual net income? The correct answer is delay shipments and sales to customers until after the end of the fiscal year

Make a journal entry(s) for the following:

      On December 22, 2019 the company had a sale on account of $25,000. The related COGS for this sale was $16,000.

     

      Note: The company uses a perpetual inventory system.

                                                                                                                              Debit               Credit

      If the company decided to delay the above sale to its customer until January 10, 2020 what would the impact be on the December 31, 2019 income statement? Make sure your answer includes the dollar impact on Sales, COGS, and net income.

Answer 1

Journal Entry

Date	Account	Debit	Credit
22/12/19	Cost of goods sold	16,000
I	Inventory		16,000
22/12/19	Sales		25,000
	Accounts receivable	25,000

If the company decided to delay the above sale to its customer until January 10, 2020 ,the impact on December 31, 2019 income statement are:

Sales

Sales will be reduced by 25,000

COGS

COGS will be reduced by 16,000(If the company uses a perpetual inventory system, cost of goods sold is being calculated only a sale takes place.

Net Income

Net income will be reduced by 9,000(25000-16000)