Lecture Notes: Recording Sales in a Perpetual Inventory System

Introduction

• Focus on recording sales in a perpetual inventory system.
• Follow-up from previous lesson on purchasing inventory.
• Covers cash sales, sales on account, and collecting cash.

Recording Sales

Cash Sales

• Example: Smart Touch Learning sells two tablets for $500 each on June 19 for a total of $1,000.
• Two journal entries required:
  1. Sales Revenue
     • Debit Cash $1,000
     • Credit Sales Revenue $1,000
  2. Cost of Goods Sold (COGS)
     • Debit COGS $700
     • Credit Merchandise Inventory $700

Sales on Account

• Example: Sold five tablets for $500 each on June 15, cost $1,750.
• Journal entries:
  1. Revenue
     • Debit Accounts Receivable
     • Credit Sales Revenue
  2. COGS and Inventory
     • Debit COGS $1,750
     • Credit Merchandise Inventory $1,750

Sales Discounts

• Encouragement for early payment using sales discounts.
• Terms: 2/10, Net 30 (2% discount if paid within 10 days).
• Example: Sold 10 tablets for $500 each on June 21.
  • Sale amount reduced by discount (2% of $5,000 = $100).
  • Entries for Discounted Sale
    • Debit Accounts Receivable $4,900
    • Credit Sales Revenue $4,900

Payment Scenarios

1. Within Discount Period (payment in 10 days)
   • Debit Cash $4,900
   • Credit Accounts Receivable $4,900
2. Outside Discount Period
   • Debit Cash $5,000
   • Credit Accounts Receivable $4,900
   • Credit Sales Discount Forfeited $100

Sales Returns and Allowances

• Sales Returns: Customers return goods.
• Sales Allowances: Customers keep goods at reduced price.
• Estimation Required: Based on expected returns.
  • Example Estimate: $1 million sales, 4% returns expected.
  • Entries:
    • Debit Sales Revenue $40,000
    • Credit Refunds Payable $40,000
    • Debit Estimated Returns Inventory $24,000
    • Credit COGS $24,000

Actual Returns

• Example: Customer returns $2,000 worth of goods ($800 cost).
  • Entries for Actual Return:
    • Debit Refunds Payable
    • Credit Cash
    • Debit Merchandise Inventory
    • Credit Estimated Returns Inventory

Sales Allowance

• Example: $100 allowance for damaged goods.
  • Entry:
    • Debit Refunds Payable $100
    • Credit Accounts Receivable $100

Freight-Out

• Definition: Cost of shipping goods to customer.
• Example: $30 delivery expense recorded as:
  • Debit Delivery Expense $30
  • Credit Cash $30

Conclusion

• Understanding of recording sales, discounts, returns, and allowances in a perpetual inventory system.