Question

2. Explain the reason for using the perpetual net sales method of recording sales versus the gross sales method. Explain how a sale would be recorded with a discount on the seller's books (two journals). Give an example. Explain how a company records the payment of an invoice if the payment is received after the invoice discount date has past. Give an example.

Answer 1

1) The Perpetual Inventory system counts merchandise in real time. As soon as something is purchased, it is recorded in the system. As soon as something is sold, it is removed from the system keeping a real time count of inventory. it also record all kind of purchase or sales returns which helps to maintaine of correct or accurate inventory or sales record. On the other hand Gross Sales Method give gross value of sales Under gross method, the sales transaction is recorded at gross price without deducting the amount of discount offered or sales return if any. So To get the accurate value of sales Perpetual Net sales method is using.

Net Sales = Gross Sales - (Sales Discount + Sales Return + Sales Allowance )

2) Apr1 XYZ Co. Sells $4000 Merchandise To ABC Co. , 2/10, n/30,.

Apr 11 ABC Co. pays for the Apr 1 purchase from XYZ Co.

Journal Entry In The Books Of Seller

Apr 1 Accounts Receivable Dr $4000

To Sales $4000

( Being Sales made )

Apr 11 Cash Dr $3940

Sales Discount Dr $60

To Accounts Receivable $4000

( Being Discount allowed 2% on $4000)

3) We Can Take Above Example for Understand this :

Apr1 XYZ Co. Sells $4000 Merchandise To ABC Co. , 2/10, n/30,.

Apr 12 ABC Co. pays for the Apr 1 purchase from XYZ Co.

Apr 1 Accounts Receivable Dr $4000

To Sales $4000

( Being Sales made )

Apr 11 Cash Dr $4000

To Accounts Receivable $4000

( Being payment recd )

As In this Case Buyer pay after the discount date so he/she will not allow to get the discount on invoice value and has to pay the full amount of the purchase.