Question

Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 2/10, n/60 and an invoice price of $25,000. The merchandise had cost Mesa $17,050. Assume that both buyer and seller use a perpetual inventory system and the gross method.

1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.
2. Prepare entries that the seller records for the (a) sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.

Answer 1

1) Journal entry : Buyer

No	General journal	Debit	Credit
a	Inventory	25000
	Account payable		25000
b	Account payable	25000
	Cash (25000*98%)		24500
	Inventory		500
c	Account payable	25000
	Cash		25000

2) Journal entry : Seller

No	General journal	Debit	Credit
a	Account receivable	25000
	Sales revenue		25000
	Cost of goods sold	17050
	Inventory		17050
b	Cash	24500
	Sales discount	500
	Account receivable		25000
c	Cash	25000
	Account receivable		25000