AC06

My Boutique
Solution to Problem Statement

Cash received for goods to be delivered later

On 20 Jan, the shop sold 4 dresses to a customer-Mary for S$840, paid

in cash. The goods to be delivered on 14 February.
Dr Cr
20 Jan 09 Cash S$840
Unearned revenue S$840
(Being unearned revenue for 4 dresses)

14 Feb 09 Unearned revenue S$840

Sales S$840
(To record sales of 4 dresses)
Solution to Problem Statement

Downpayment received for goods to be delivered later

On 22 Jan, the shop received S$400 as downpayment for sales of 3

evening gowns at S$1,350. The goods are to be delivered on 4 February
2009 and the balance of amount owing was paid.

Dr Cr
22 Jan 09 Cash S$400
Unearned revenue S$400
(Being unearned revenue for 3 evening gowns)
Solution to Problem Statement
Cash deposit received for goods to be delivered later – cont…

Dr Cr
4 Feb 09 Unearned revenue S$400
Cash S$950
Sales S$1,350
(To record sale of 3 evening gowns)

4 Feb 09 Cost of Sales S$450

Inventory S$450
(Being cost of 3 evening gowns sold)
Solution to Problem Statement

Cash sales with sales discount (trade discount)

Sold 10 business suits for S$4,320, after 10% discount. Cash collected.
Dr Cr

2 Jan 09 Cash S$4,320

Trade Discount S$480
Sales Revenue S$4,800
(Being sale of 10 business suits at 10% discount)

2 Jan 09 Cost of Goods Sold S$1,800

Inventory S$1,800
(Being cost of 10 business suits sold)
Solution to Problem Statement
Credit sales with sales discount (cash discount)

On 19 Jan, Glamour Media paid for the 10 evening gowns bought on 9

January 2009, term 5/10, net 30.
Dr Cr

19 Jan 09 Cash S$4,275

Cash Discount S$225
Account Receivable S$4,500
(Being cash received for 10 evening gowns term 5/10, net
30)
Solution to Problem Statement

Sales returns
1 of the business suits sold on 2 Jan was returned on 4 Jan as its size
was incorrect.
Dr Cr

4 Jan 09 Sales Returns and Allowances S$480

Cash S$432
Trade discounts S$48
(To record return of 1 business suit)

4 Jan 09 Inventory S$180

Cost of Goods Sold S$180
(To record cost of goods returned)
Sold 1 business suit to Vivian. Usual selling price, S$480.
Gave Vivian 30% discount on top of prevailing 10%.
Collected S$100 cash.

Do we record S$480 or S$100 as sales

revenue for Jan 2009?
Solution to Problem Statement
Dr Cr

18 Jan 09 Cash S$100

Accounts Receivable - Vivian S$202
Trade Discount S$178
Sales S$480
(Being sale of 1 business suit)
[Total Trade discount $480*10% disc=$432*30% disc=$302]

18 Jan 09 Cost of Goods Sold S$180

Inventory S$180
(Being cost of 1 business suit sold)
Solution to Problem Statement
Dr Cr

31 Jan 09 Salaries Payable S$7,000

Cash S$7,000
(Being payment for salaries payable)

31 Jan 09 Other Operating Expense S$7,100

Cash S$7,100
(Being payment for other operating expense)
Solution to Problem Statement
One-year warranty on watches:-
Dr Cr

11 Jan 09 Warranty expense S$60

Provision for warranty S$60
(Being provision for warranty expense)

[6% X S$1,000 (cost $100 x 10 watches sold) = $$60]

A warranty is a liability obligation/guarantee on an article sold as

factually stated by the seller and which it provide specific remedy such
as repair or replacement in the event the article fails to meet the
warranty.
 When warranty work is performed under the
warranty coverage, the warranty liability will
be reduced.
Dr Cr

Provision for warranty $XXX

Cash/inventory parts $XXX
(Being warranty repair)
 Microsoft Office
Excel 97-2003 Worksheet

When sales incurs, we need to apply the revenue
principle to determine appropriate time to record
sales.

Sale return and sales discount transactions are

contra revenue account that have debit nature and
presented after Sales accounts in the
comprehensive of income statement.

If warranty was given to customer, the amount in

determined for provision will be based replacement
costs of a goods/articles.

Deposit received in advance of sales transaction

(i.e. order of goods by customers) will be recorded
as unearned revenue in the current liability of the
statement of financial position.
 Sales
Sales
discount
returns
Unearned s
Revenue –
Deposits/ reduce
Advance Net Sales
collection

Less: COGS
Liability in the Warranty
statement of financial expenses
position
Gross Profit

Future sales revenue Less: Expenses Liability in the

statement of
financial position

Net Profit
Textbooks

Kieso, Weygandt and Warfield; Fundamentals of Intermediate Accounting; John
Wiley & Sons, Inc.; 2003; Chapter 11 pg 533-536.

Spiceland, Sepe, Tomassini; Intermediate Accounting; McGraw-Hill/Irwin; 2004;
Chapter 7 pg 324-327.

Libby, Libby, Short; Financial Accounting; McGraw-Hill/Irwin; 2004; Chapter 6 pg
286-288.

Websites

Principles of Accounting.com,
http://www.principlesofaccounting.com/chapter%2012.htm, Retrieved on 2 Mar
2009 (Search for warranty costs)

Principles of Accounting.com,
http://www.principlesofaccounting.com/chapter%205.htm, Retrieved on 2 Mar
2009

Chapter 5: Merchandising Operations and the Accounting Cycle
http://faculty.saintleo.edu/pendarvis/acc-201-mod10-notes.htm, Retrieved on 2
Mar 2009

FRS 18 – Revenue http://www.asc.gov.sg/frs/attachments/2004/FRS_18.pdf ,
Retrieved on 2 Mar 2009