During 2019, Reed Corporation sold merchandise for a total of $900,000. The cost of merchandise to Reed was $675,000. Reed offers credit terms of 1/10, n/30 to encourage early payment. At year-end, there are $22,500 of sales still eligible for the 1% discount. Reed believes that all of the companies will pay within the discount period to receive the 1% discount. Assume Reed’s fiscal year is December 31. Reed’s adjusting journal entry will include:
Adjusting Journal Entry:
Particulars Debit Credit
Debtors/Accounts Receivable 22275
Sales Discount(1 % of 22500) 225
Sales 22500
(Being Adjusted Journal entry recorded for eligible sales)
Note:1/10, n/30 means that the recipient will get 1% discount if he made the payment within 10 days instead of 30 days.
Cost of Goods Sold Dr. 16875
(22500*675000/900000)
Merchandise Inventory 16875
(Being Merchandise inventory sold recorded)
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