1. If a seller allows returns of merchandise, the seller is required to estimate ___ Sales Returns & Allowances ___ at the end of each period.
2. The seller may offer __Sales Discounts__ as an incentive to customers to pay off their Accounts Receivable more quickly.
3. Both of the above accounts are contra __revenue___ accounts. This means they both decrease the seller’s sales revenue.
4. Formula to calculate Net Sales:
Sales revenue (gross sales) – SR&A – Sales Discounts = Net Sales
5. Formula to calculate Gross Profit:
Net Sales – COGS (Cost of Goods Sold) = GP (Gross Profit)
Transaction Seller Journal Entry Buyer Journal Entry
On July 1, Rogers Company
purchases $5,000 of flip-
flops on account from
Sandals Supplier Co. For
Sandals Supplier, the flip-
flops cost them $2,500.
Dr. AR 5,000
Cr. Sales Revenue 5,000
Dr. COGS 2,500
Cr. Inventory 2,500
Dr. Inventory 5,000
Cr. AP (Accounts Payable) 5,000
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Seller vs. Buyer Transactions
