Question

What is the correct journal entry to record the sale of goods to Xtra Inc. by Sarosta Corp., assuming a periodic inventory system and expecting a return rate of 15%?

a. Debit Accounts Receivable, Credit Sales
b. Debit Sales, Credit Accounts Receivable
c. Debit Sales, Credit Inventory
d. Debit Accounts Receivable, Credit Inventory

Answer 1

The correct journal entry under a periodic inventory system expecting a return rate of 15% involves debiting Accounts Receivable for the full sale amount and crediting Sales Revenue, Estimated Returns Inventory, and Cost of Goods Sold appropriately.

Step-by-step explanation:

The correct journal entry to record the sale of goods by Sarosta Corp. to Xtra Inc., assuming a periodic inventory system and expecting a return rate of 15%, would be to:

• Debit Accounts Receivable for the full amount of the sale (since you expect payment for the total sale, regardless of the return rate).
• Credit Sales Revenue for the full amount of the sale minus the expected returns.
• Credit Estimated Returns Inventory for the cost of the goods expected to be returned (15% of the cost of the goods sold).
• Credit Cost of Goods Sold for the cost of goods that are actually sold (85% of the cost of the goods, since 15% is expected to be returned).

The periodic inventory system records inventory purchases as they occur but does not continuously track inventory levels. Instead, a physical count at the end of the accounting period updates the inventory records. The amount of inventory sold is determined by a calculation at period end, not by individual sales transactions. Therefore, the Sales Revenue and Estimated Returns Inventory accounts are affected at the time of sale, but the Inventory account is not directly debited when each individual sale is made.