Sales This refers to selling price of goods to customers (buyers). The selling price is the sum of the
acquisition cost of goods and the profit.
Sales Discount This refers to prompt payment discount given to customers (buyer) for their early
payment of accounts.
Sales Returns This refers to selling price of goods previously sold but returned by customers (buyers)
due to defects, wrong specifications, and other acceptable reasons.
Sales Allowances This refers to reduction in selling price of goods previously sold but discovered by
customers (buyers) that the items sold to them have defects but they have no intention to return such
goods to sellers.
Sales
Accounting
Element
Revenue
Sales Discount
Contra Revenue
Account Names
Normal
Balance
Credit
Financial
Statement
Income Statement
Debit
Income Statement
Section of FS
Revenue
From Sales
Revenue
From
Sales
(this is the
basic
accounting
treatment)
Sales Returns
Contra Revenue
Debit
Income Statement
Revenue
From sales
Sales Allowances
Contra Revenue
Debit
Income Statement
Revenue
From sales
Freight-out
Expense
Debit
Income Statement
Operating
expenses
Distribution
cost or Selling
Expenses
Valuation
Selling
Price
(Acquisition
cost
PLUS Profit)
Based on discount
rate approved by
suppliers
Selling
Price
(Acquisition
cost
PLUS Profit)
Selling
Price
(Acquisition
cost
PLUS Profit)
Cost of delivery,
including
other
related expenses.
Notes:
Contra Accounts are accounts deducted from balances of its mother account.
Sales
Less: Sales Discount
Sales Returns
Sales Allowances
Net Sales
XXX
XXX
XXX
XXX
XXX
XXX
Sold merchandise on account basis to Domination Trading, PhP 150,000.00 (Sales Invoice 105).
to be returned.
To illustrate, see example below:
June 1
- Cash sales to XYZ Trading, PhP 50,000.00 (Sales Invoice 101).
June 2
- Returned PhP 2,000.00 worth of goods sold by XYZ Trading.
Accounting Journal Entries:
June 1
- Cash
Sales
Cash sales (SI No. 101)
50,000.00
50,000.00
Receivable.
June 2
- Sales Returns
2,000.00
Cash
2,000.00
Return of goods by XYZ Trading due to damage.
Notes:
credit should be
Accounts Receivable.
Sales
50,000.00
Less: Sales Returns
Net Sales
2,000.00
48,000.00
70,000.00
70,000.00
Notes:
If the sale of goods was on account basis, the
Receivable.
June 2
- Sales Returns
10,000.00
Cash
10,000.00
Return of goods by ABC Trading due to damage.
Notes:
If the sale of goods was on account basis, the
Receivable.
June 3
- Sales Allowances
1,000.00
Cash
1,000.00
Reduction in selling price to ABC Trading due to minor damage.
Notes:
If the sale of goods was on account basis, the
Receivable.
Income Statement Presentation:
Sales
Less: Sales Allowances
Sales Returns
Net Sales
50,000.00
1,000.00
2,000.00
3,000.00
47,000.00
If Sales Discounts are given to buyers, the SELLERS Revenue decreases by the amount of the discount.
Case 1:
On January 1, 2010, Bronze Trading sold merchandise to Silver Trading amounting to PhP 200,000.00.
Terms: 2/10; n/60.
Situation A: The account was collected within the discount period.
Situation B: The account was collected beyond the discount period.
Case 2:
On January 1, 2010, Mountain Marketing sold goods to Boondock Trading amounting to PhP 100,000.00.
Terms: 2/15; 1/30.
Situation A: The account was collected in full within the fifteen (15) days discount period.
Situation B: The account was collected in full within the thirty (30) days discount period.
Situation C: PhP 40,000.00 was collected within the ten (10) days discount period, the balance within the
thirty (30) days discount period.
Purchases
Accounting
Element
Expense
Normal
Balance
Debit
Financial
Statement
Income Statement
Purchase Discount
Contra Expense
Credit
Income Statement
Purchase Returns
Contra Expense
Credit
Income Statement
Purchase
Allowances
Freight - in
Contra Expense
Credit
Income Statement
Adjunct Expense
Debit
Income Statement
Account Names
Section of
FS
Cost of
Sales
Cost of
Sales
Cost of
Sales
Cost of
Sales
Cost of
sales
Valuation
Acquisition cost
Based on discount rate
approved by suppliers
Acquisition cost
Based on amount
approved by suppliers
Delivery cost amount,
including other related
costs; also called
inward transportation
or transportation-in
Notes:
Contra Accounts are accounts deducted from balances of its mother account.
Sales Section
9.
10.
11.
12.
13.
Purchase Returns
Purchase Allowances
Net Purchases
Add: Freight in
Cost of goods available for sale
Less: Merchandise Inventory, end of the year
Cost of Sales
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Purchase merchandise on account basis from XCEL Trading, PhP 50,000.00 (Sales Invoice 105).
Purchases
50,000.00
Accounts Payable XCEL Company
Purchases on account (SI No. 102).
50,000.00
70,000.00
70,000.00
credit should be
Accounts Payable.
June 2
- Cash
10,000.00
Purchase Returns
10,000.00
debit should be
Accounts Payable.
XXXXXX
70,000.00
10,000.00 60,000.00
XXXXXX
XXXXXX
XXXXXX
70,000.00
70,000.00
Notes:
If the acquired goods was on account basis, the
credit should be
Accounts Payable.
June 2
- Cash
10,000.00
Purchase Returns
10,000.00
Return of goods to ABC Trading due to damage.
Notes:
If the acquired goods was on account basis, the
debit should be
Accounts Payable.
June 3
- Cash
1,000.00
Purchase Allowances
1,000.00
Reduction in cost by ABC Trading due to minor damage.
Notes:
If the acquired goods was on account basis, the
Accounts Payable.
XXXXXX
70,000.00
debit should be
10,000.00
Purchase Allowances
Cost of goods available for sale
Less: Merchandise Inventory, end of year
Cost of Sales
Situation C: PhP 40,000.00 was paid within the ten (10) days discount period, the balance within the thirty
(30) days discount period.