Question

James Bakery sells cupcakes to William's Restaurant. The credit terms are 1%/5/net 15. The selling price is $1.50 per cupcake. The cost per cupcake is $1.00. James' uses a perpetual inventory system. James' most recent sale is for 500 cupcakes. What amounts are entered into each account to record the transaction in which the account is paid within the discount period. (enter each answer using a number with two decimal places and no dollar signs; e.g., 2.50)

• Revenue [A]
• Cost of Goods Sold [B]
• Accounts Receivable [C]
• Discounts, Returns, and Allowances [D]
• Cash [E]
• Inventory [F]

Answer 1

Revenue
It can be gross revenue or net revenue,
For gross revenue = 500 x $1.50 = $750
For Net Revenue = 500 x $1.50 x 99% = $742.50 i.e. Sales net of discount
Cost of Goods Sold = 500 x $1 = $500
Discounts, Returns, and Allowances = 500 x $1.50 x 1% = $7.50
Cash = 500 x $1.50 x 99% = $742.50
Inventory = ($500)