On may 22 hanlon paid we ship it 200 for shipping on

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On May 22, Hanlon paid We Ship It $200 for shipping on the items purchased May 21. The journal entry would be as follows: Date Account Debit Credit May 22 Merchandise Inventory 200 Cash 200 To record the payment of shipping charges. Purchase Returns and Allowances A purchase return occurs when a buyer returns merchandise to a seller. When a buyer receives a reduction in the price of goods shipped but does not return the merchandise , a purchase allowance results. Regardless of whether we have a return or an allowance, the process is exactly the same under the perpetual inventory system. Both returns and allowances reduce the buyer’s debt to the seller (accounts payable) and decrease the cost of the goods purchased (inventory). We will debit Accounts Payable and credit Merchandise Inventory. If Hanlon returned $350 of merchandise to Smith Wholesale on May 6 before paying for the goods, Hanlon would make this journal entry: Date Account Debit Credit May 6 Accounts Payable 350 Merchandise Inventory 350 To record return of merchandise. The entry would have been the same to record a $350 allowance. Only the explanation would change.
If Hanlon had already paid the account, the debit would be to Cash instead of Accounts Payable, becausee Hanlon would receive a refund of cash. If the company took a discount at the time it paid the account, only the net amount would be refunded. For instance, if a 2% discount had been taken, the return amount would be $350 – (350 x 2%), or $343. Hanlon’s journal entry for the return would be: Account Debit Credit May 6 Cash 343 Merchandise Inventory 343 To record return of merchandise for a refund less the 2% discount. Paying for Inventory Purchased on Credit When paying for inventory purchased on credit, we will decrease what we owe to the seller (accounts payable) and cash. If we take a discount for paying early, we record this discount in the merchandise inventory account because it will reduce what we paid for inventory. Using the purchase transaction from May 4 and no returns, Hanlon pays the amount owed on May 10. May 10 is within the discount period, and Hanlon will take the 2% discount provided in the terms 2/10, n30 (remember, this means a 2% discount if paid in 10 days of the invoice date; otherwise, the full amount is due in 30 days). Date Account Debit Credit May 10 Accounts Payable 30,000 Merchandise Inventory (30,000 × 2%) 600 Merchandise Inventory Cash (30,000 – 600) 29,400 To record payment for merchandise less the 2% discount. We reduce the full amount owed on May 4 and calculate the 2% discount based on this amount. The cash amount is the amount we owe – discount. Assume we also had the return on May 6 of $350. Hanlon pays the amount owed less the return and takes the 2% discount on May 12. The journal entry for this payment would be: Date Account Debit Credit May Accounts Payable (30,000 – 350) 29,650
12 Merchandise Inventory (29,650 × 2%) 593 Cash (29,650 – 593) 29,057 To record payment for merchandise less the 2% discount and a $350 return.

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