Does the sender (maker) of a debit memorandum record a debit or a credit in the recipient’s account? What entry (debit or credit) does the recipient record?
Yes, the sender (maker) records a debit in the recipient’s account. On the other hand, the recipient should record a Credit sender account.
A document issued by the buyer to the seller that reflects the debit made to the seller’s account is known as a debit memorandum. It reflects the refund of the amount or discount on purchases made.
Accounts and Explanation
Sales return and allowance
Accounts receivable - Sender
Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 3∕10, n∕60 and an invoice price of $24,000. The merchandise had cost Mesa $16,000. Assume that both buyer and seller use a perpetual inventory system and the gross method.
1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.
2. Prepare entries that the seller records for the (a) sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.
Key comparative figures for Apple and Google follow.
Cost of sales
1. Compute the dollar amount of gross margin and the gross margin ratio for the two years shown for each of these companies.
2. Which company earns more in gross margin for each dollar of net sales? How do they compare to the industry average of 45.0%?
3. Did the gross margin ratio improve or decline for these companies?
Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions. Both Sydney and Troy use a perpetual inventory system and the gross method.
May 11 Sydney accepts delivery of $40,000 of merchandise it purchases for resale from Troy: invoice dated May 11; terms 3∕10, n∕90; FOB shipping point. The goods cost Troy $30,000. Sydney pays $345 cash to Express Shipping for delivery charges on the merchandise.
12 Sydney returns $1,400 of the $40,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $1,050.
20 Sydney pays Troy for the amount owed. Troy receives the cash immediately.
1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.
2. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.
BTN 4-3 Amy Martin is a student who plans to attend approximately four professional events a year at her college. Each event necessitates a financial outlay of $100 to $200 for a new suit and accessories. After incurring a major hit to her savings for the first event, Amy developed a different approach. She buys the suit on credit the week before the event, wears it to the event, and returns it the next week to the store for a full refund on her charge card.
1. Comment on the ethics exhibited by Amy and possible consequences of her actions.
2. How does the merchandising company account for the suits that Amy returns?
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