Chapter 5, Problem 22QS

To determine

Concept Introduction:

Perpetual Inventory system: This method records the inventory and the cost of goods sold continuously on the occurrence of a sale or a purchase transaction.

Gross Method: Under this method of accounting, sales are recorded at gross invoice value and if cash discount is availed by the customer, then accounts receivable are adjusted by passing an entry.

Journal entries: It is the first and foremost step in maintaining books of accounts. Journal entries record the economic transactions made for the business in a chronological order.

Credit terms: These are the agreed terms between the buyer and the seller and show the payment terms and the discount availed if the payment made timely, etc.

Discount period: Discount period is the period during which the cash discount is available and the purchaser needs to pay the net invoice price i.e., invoice amount less discount.

To Prepare: Journal entries for sales, sales return made and its receipt considering company using the gross method to record purchases and a perpetual inventory system.