Question

O’Neill Ltd’s Ski Gear Shop sells skiing gear. On 1 June 2012, O’Neill Ltd’s Ski Gear Shop makes a ski boot sale to a customer for with a sales price of $1,000 for cash. O’Neil Ltd sets its selling price by employing a 100% mark up on the cost of inventory. The customer has the ability to return the goods during a 7 day return period under certain strict conditions – returns can only be made if the size is incorrect or the product is faulty and it only allows exchange of goods. Because of the strict returns policy, O’Neill Ltd estimates that typically only about 1% of customers will return their ski gear.

c) Write down the journal entry (if any) in O’Neill Ltd’s ledger in relation to the sale of the skiing gear, and indicate the date when the journal entry is recorded.

Answer 1

Answer;

Journal Entry ;

Date Particulars   Debit($) Credit($)

1 June 2012 Cash Dr 1000

Sales Revenue    1000

( To Record Sale of Merchandise on cash to a Customer )

1 June 2012    Cost of Goods Sold Dr 500

Merchandise Inventory 500

  ( To Record cost of Merchandise sold to a Customer )

( Cost = (1000 / 200)*100 = $ 500 )

Explanation ;

Normally we have to provide Allowance for sales Returns and Allowance for Estimation of Sales Returns to be happened in Future even though whether those are cash or credit Sales . But , In case of returns to be happened with in Due Date allowed to customers ,for those returns we have to booked by Exchange of goods and remaining we estimate at the end of the Year.

THANK YOU !