Question

Hair Care Inc. is a wholesaler of hair supplies. Hair Care uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis: a. Sold merchandise for cash (cost of merchandise $28, 497) $50,900 b. Received merchandise returned by customers as unsatisfactory (but in perfect condition), for cash refund (original cost of merchandise $330) c. Sold merchandise (costing $4,600) to a customer, on account with terms 3/10, n/30 10,000 d. Collected half of the balance owed by the customer in (c) within the discount period 4,850 e. Granted an allowance to the customer in (c) Required: 1. Compute Sales Revenue, Net Sales, and Gross Profit for Hair World. Sales revenue Net sales Gross profit

Answer 1

	Account Titles	Debit	Credit
a	Cash	$       50,900
	Sales Revenue		$       50,900
	Cost of Goods Sold	$       28,497
	Inventory		$       28,497
b	Sales returns and allowances	$             570
	Cash		$             570
	Inventory	$             330
	Cost of Goods Sold		$             330
c	Accounts receivable	$       10,000
	Sales Revenue		$       10,000
	Cost of Goods Sold	$         4,600
	Inventory		$         4,600
d	Cash	$         4,850
	Sales Discount	$             150
	Accounts Receivable		$         4,850
e	Sales returns and allowances	$             145
	Accounts Receivable		$             145

Sales Revenue	$       60,900	=50900+10000
Net Sales	$       60,035	=60900-570-150-145
Cost of Goods Sold	$       32,767	=28497-330+4600
Gross Profit	$       27,268
Gross Profit (%)	45.42%

Gross Profit (%) = Gross Profit / Net Sales x 100

Net Sales	$       74,735	=60035+14700
Cost of Goods Sold	$       42,767	=32767+10000
Gross Profit	$       31,968
Gross Profit (%)	42.78%

It decreases Gross Profit Percentage