Prepare journal entries to record each of the following sales transactions of TFC Merchandising. TFC uses a perpetual inventory system and the gross method.

May 1

Sold merchandise for $860, with credit terms n/60. The cost of the merchandise is $530.

May 9

The customer discovers slight defects in some units. TFC gives a price reduction (allowance) and credits the customer’s accounts receivable for $66 to compensate for the defects.

June 4

The customer in the May 1 sale returned $140 of merchandise for full credit. The merchandise, which had cost $76, is returned to inventory.

June 30

Received payment for the amount due from the May 1 sale less the May 9 allowance and June 4 return.

To record the sales transactions for TFC Merchandising, we will prepare the journal entries based on a perpetual inventory system using the gross method.

### May 1 - Sale of Merchandise

1. **Record the sale of merchandise**  
   - Debit Accounts Receivable: $860  
   - Credit Sales Revenue: $860  

2. **Record the cost of goods sold**  
   - Debit Cost of Goods Sold: $530  
   - Credit Inventory: $530  

---

### May 9 - Sales Allowance for Defective Merchandise

3. **Record the sales allowance**  
   - Debit Sales Returns and Allowances: $66  
   - Credit Accounts Receivable: $66  

---

### June 4 - Return of Merchandise

4. **Record the sales return**  
   - Debit Sales Returns and Allowances: $140  
   - Credit Accounts Receivable: $140  

5. **Record the inventory return**  
   - Debit Inventory: $76  
   - Credit Cost of Goods Sold: $76  

---

### June 30 - Receipt of Payment

6. **Record the receipt of payment from the customer**
   - The original sales amount was $860.
   - After the sales allowance of $66 and the sales return of $140, the adjusted amount due is calculated as:
     \[
     860 - 66 - 140 = 654
     \]
   - Debit Cash: $654  
   - Credit Accounts Receivable: $654  

---

These entries capture each part of the sales process from initial sale to receipt of payment under the gross method and perpetual inventory system.

Would you like more details on any step? Here are related questions for additional practice:

1. How would the entries change if TFC used the periodic inventory system?
2. What journal entries would apply if TFC used the net method instead of the gross method?
3. How is inventory value affected under a perpetual inventory system compared to a periodic system?
4. What would the entries look like if the customer paid on May 5 instead of June 30?
5. How would TFC account for shipping costs if they covered freight charges?

**Tip:** Always recheck each account to ensure the entries align with the transaction dates and adjustments.

Prepare journal entries to record each of the following sales transactions of TFC Merchandising. TFC uses a perpetual inventory system and the gross method.

May 1
Sold merchandise for $860, with credit terms n/60. The cost of the merchandise is $530.

May 9
The customer discovers slight defects in some units. TFC gives a price reduction (allowance) and credits the customer’s accounts receivable for $66 to compensate for the defects.

June 4
The customer in the May 1 sale returned $140 of merchandise for full credit. The merchandise, which had cost $76, is returned to inventory.

June 30
Received payment for the amount due from the May 1 sale less the May 9 allowance and June 4 return.

Learn to prepare journal entries for TFC's sales transactions, including allowances, returns, and receipt of payment under a perpetual inventory system and the gross method. Covers concepts like Accounts Receivable, Sales Revenue, Inventory, and Cost of Goods Sold. Suitable for accounting students and professionals.

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