Journalize The Following Transactions For Adams Company Using The Gross Method Of Accounting For Sales Discounts. Assume A Perpetual Inventory System. Also, Assume A Constant Gross Profit Ratio For All Items Sold. Make Sure To Enter The Day For Each Separate Transaction. April 9 Sold Goods Costing $6,000 To Evans Company On Account, $10,000, Terms 3/10, N/30. April 15 Evans Company Was Granted An Allowance Of $1,200 For Returned Merchandise That Was Previously Purchased On Account. The Returned Goods Are In Perfect Condition. April 19 Received The Amount Due From Evans Company.

Here, we need to record journal entries date-wise for Adams Company (Selling Company) using the gross method under perpetual inventory system in which accounts receivable and sales are recorded at gross amount (full amount) and not at net amount.

April 9

Accounts Receivable a/c $10,000

                                       Sales a/c $10,000

(Sold Merchandise To Evans Company)

Cost of Goods Sold a/c $6,000

                                Inventory a/c $6,000

(To Update Inventory Due To Sales Made On Account Which Reduces Its Balance)

April 15

Sales Return & Allowance a/c $1,200

                                              Accounts Receivable a/c $1,200

(Sales Allowance Granted For Return Goods)

Inventory a/c $720

                                Cost of Goods Sold a/c $720

               (To Update Inventory Due To Sales Return & Allowance Which Increases Its Balance)

As we know that a constant gross profit ratio is applied on all items sold, so the sales is used here as based value ($10,000, with sales ratio equal to 100%) on which gross profit or cost of goods sold ratio is calculated, so to calculate cost of goods / merchandise returned, we need percentage of cost.

As, we know:

% of cost = cost of goods sold / Sales X 100 = $6,000 / $10,000 X 100 = 60%

So, cost of goods returned = $1,200 X 60/100 = $720

April 18

Cash a/c $8,536

Sales Discount a/c $264

                            Accounts Receivable a/c $8,800

(Cash Received From Evans Company Within Discount Period And Sales Discount Given)

Here the payment was made on April 10 while the merchandise sold on April 9. The discount period was 10 days from April 9 to April 18. As the payment had been received on April 18 which falls within the discount period, therefore the company gave sales discount to Evans Company. The percentage of sales discount. It is calculated as shown below:

Sales Discount = Amount of Merchandise Sold - Sales Return & Allowance X 3%

Sales Discount = $10,000 - $1,200 X 3% = $8,800 X 3%  = $264