Daniel owns a poultry supply company and sells frozen chickens to restaurants. O

Question

Daniel owns a poultry supply company and sells frozen chickens to restaurants. One day, he shipped frozen wings to Pizza Ibiza who practice strict quality controls. Pizza Ibiza came back saying that there was too much ice included in the weight of chicken that he sold. Daniel discovered that there was a problem with the freezer and allowed Pizza Ibiza to deduct 10% off the last bill of $1,000. Which of the following journal entries should Daniel make when Pizza Ibiza settles the bill? Select one:

a. Dr Cash $900, Dr Sales Returns and Allowances $100, Cr Accounts Receivable $1,000

b. Cr Cash $900, Cr Revenue $100, Dr Accounts Receivable $1,000

c. Dr Cash $900, Cr Sales Returns & Allowances $100, Cr Accounts Receivable $900

d. Dr Cash $900, Dr Cost of Goods Sold $100, Cr Accounts Receivable $1,000

Explanation / Answer

The Option a. Dr Cash $900, Dr Sales Returns and Allowances $100, Cr Accounts Receivable $1,000 is the correct option.

Explanation:

When sales will be made the entry would have been passed as

Dr Accounts Receivable $1,000, Cr Sales $1,000

Now as Pizza Ibiza is allowed to deduct 10% off the last bill of $1,000. the Sales Returns and allowances will be $100, which will reduce the cah amount to $900 and the entry Daniel should make when Pizza Ibiza settles the bill is Dr Cash $900, Dr Sales Returns and Allowances $100, Cr Accounts Receivable $1,000

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