Question:
I can't figure out how to enter this on my journal entry? Do I use Accounts payable?
Billed the Running Ramblers $243.04 plus sales tax for accessories installed for no-charge on their racing craft (sales invoice number G4010)
Merchandise listed:
Item: Speedometer Quantity: 2 Net Cost: $29.40
Item: Tachometer Qauntity: 2 Net Cost: $31.36
It looks like it's a total of 121.52/ 50% = 243.04...But I have no idea how to enter this? Any help would be much appreciated.
Answers:
With word problems like this, you have to break the problem down in manageable pieces.
"Billed the Running Ramblers $243.04 plus sales tax"
Your company has billed the client. That means you haven't RECEIVED any money yet. Therefore, it would be an ACCOUNTS RECEIVABLE entry. Since Accounts Receivable is a short-term asset account, it would normally have a debit balance.
"for accessories installed"
This part indicates your company SOLD parts and service. Since your company has sold something, that will be recorded in your SALES REVENUE account. This account is an INCOME account and will have a CREDIT balance.
In the second part of the problem, under Merchandise listed, since the problem says "Net Cost" and the total doesn't equal the billed total, it is probably safe to assume that the Net Cost listed in the problem refers to your company's cost. If that is the case, then the $121.52 is your COST OF GOODS SOLD. A Cost of Goods Sold account is opposite of your revenue account and would therefore have a DEBIT balance. Since you have sold the parts, they are no longer in your inventory and therefore you will need to reduce your inventory by the same amount as your cost of goods sold.
So, to complete this problem, you need to make TWO journal entries. The accounts affected are Accounts Receivable, Sales Revenue, Cost of Goods Sold and Inventory. I leave the rest to you.
Good luck,
If you are paying a bill, use accounts payable.
In this case someone was billed, so you need to use accounts receivable.
receivable=$ coming in
payable=$ going out
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