14 \"Sales\" is a revenue account and like all revenue accounts it goes up with

Question

14 "Sales" is a revenue account and like all revenue accounts it goes up with a credit. "Sales Returns Allowances " is a contra-revenue account that goes up with a debit. What does it mean when a merchant debits her Sales Returns & Allowances account? Why would a merchant use the contra-account rather than simply, directly reducing the Sales account? 21 When a company sells a piece of equipment, it must zero-out the accounts related to that equipment to get it off the books. In this process, the company may record a gain or loss on the sale. What is the journal entry to record a sale of equipment at a gain? What is the journal entry to record a sale of equipment at a loss? Or as a "break even" transaction?

Explanation / Answer

(1)

Some companies do not maintain a 'Sales Returns and Allowances" account. They record customer returns by directly debiting "Sales". However, it is good to maintain the aforementioned account to be able to track returns and allowances and make decisions about them if necessary

(2)

If the asset is sold off or otherwise disposed of. A write off involves removing all traces of the fixed asset from the balance sheet, so that the related fixed asset account and accumulated depreciation account are reduced.

Gain : ABC Corporation buys a Equipment for $100,000 and recognizes $10,000 of depreciation per year over the following ten years. On first day of the 7th year company decided to sell the same at $50000.

Now the situation is company has depreciated the asset amounting to$60,000

Selling price is $50,000

Gain to the company is $10,000

Following Journal will be passed

Cash A/C                                  50000

Accumulated depreciation        60000

        Equipment Account                          100,000

        Gain on sale of Equipment                 10000

Loss :ABC Corporation buys a Equipment for $100,000 and recognizes $10,000 of depreciation per year over the following ten years. On first day of the 7th year company decided to sell the same at $30000.

Now the situation is company has depreciated the asset amounting to$60,000

Selling price is $30,000

Loss to the company is $10,000

Following Journal will be passed

Cash A/C                                  30000

Loss on sale of Equipment       10000

Accumulated depreciation        60000

        Equipment Account                          100,000

Break Even :ABC Corporation buys a Equipment for $100,000 and recognizes $10,000 of depreciation per year over the following ten years. On first day of the 7th year company decided to sell the same at $40000.

Now the situation is company has depreciated the asset amounting to$60,000

Selling price is $40,000

Profit/Loss to the company is $0

Following Journal will be passed

Cash A/C                                  40000

Accumulated depreciation        60000

        Equipment Account                          100,000

(3)

For Interest Receivable entry to be passed on 31st December

Interest Receivable                   2,105 (140000*61days/365*9%)

          Interest Income                        2,105

Entry to be passed on 30th January

Interest Receivable                   1,001 (140000*29days/365*9%)

          Interest Income                        1,001

Cash                                        3,106

          Interest Receivable                   3,106

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