Question
Brightwater Retail uses a perpetual inventory system. The following transactions occurred in June 2026.
| Date | Event |
|---|
| June 5 | Sold merchandise on account for $30,000, terms 2/10, n/30. The merchandise cost $18,000. |
| June 8 | The customer returned merchandise with a selling price of $5,000 (cost $3,000). |
| June 14 | Received the balance due from the customer, within the discount period. |
Required: Prepare the journal entries. Record each sale and return with the revenue entry and the related cost-of-goods-sold entry (perpetual system), and apply the sales discount on collection.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — Inventories
A merchandising business buys finished goods and resells them, so its income statement leads with net sales, cost of sales and gross profit. Establish which inventory system is in use before recording anything, because the entries for the same transaction differ entirely between perpetual and periodic.
Common mistakes
- Mixing perpetual and periodic mechanics within a single set of entries.
- Omitting freight inwards from inventory cost, or netting freight outwards against sales rather than treating it as a distribution expense.
- Reporting sales gross when returns and allowances should reduce it.
Further readingIAS 2: costing methods and NRV