How to record revenue and collection cycle transactions?

These group of transactions refer to sales transactions, collection and returned of MDSE or price
adjustments. Therefore, we are making the entries from the seller’s perspective.

Assume the following transactions of EBG Trading.

Illustration 1 On Feb 2, 2020 sold MDSE amounting to P100,000 terms: COD, less 5% FOB
destination freight prepaid. Freight paid is P6,000.

Since the term has a trade discount, convert the list price of P100,000 into an invoice price
(P100,000 minus (P100,000 x .05)) = P95,000. Always remember that trade discount is not
recorded.

Journal entry: To record the payment

of freight Cash . . . . . . . . . . . . . . .. . . P95,000. Freight Out ........ P6,000
Sales . . . . . . . . . . . . . . . . . . . . P95,000 Cash ........................ P6,000
Received cash for MDSE sold. Payment of freight charges

There is an entry for the freight because it is the responsibility of the seller to pay the freight and
because it is freight prepaid it was paid by the seller upon shipment.

Suppose in the above transaction, the customer will return defective MDSE worth P5,000 at list
price. Convert the list price into invoice price (P5,000 x .95%)
Journal Entry:
Sales Returns and Allowances ........... P4,750
Cash ................................................... 4,750
Refund to customer for the returned of defective MDSE.

Illustration 2 On Feb. 3, 2020 sold MDSE amounting to P80,000 terms: 2/10, n/30 FOB Shipping
point freight collect.

Journal Entry:
Accounts Receivable ............... P80,000
Sales .............................................P80,000
Terms: 2/10, n/30 FOB Shipping point freight collect. (you can use the terms as your explanation)

Explanation: No entry for freight because its shipping point and freight collect. It is the
responsibility of the buyer to pay the freight and because its freight collect it was the buyer who
pays the freight therefore no entry on the part of the seller.

Suppose in the above transaction, the customer will return defective MDSE worth P10,000.
Journal Entry:
Sales Returns and Allowances ............ P10,000
Accounts Receivable ........................... P10,000
Adjustment made for the returned of defective MDSE
Explanation: Take note that the credit is Accounts Receivable, there is reduction of receivable
because the MDSE returned was previously bought on credit, therefore the receivable from the
customer is reduce by P10,000.

If the customer’s account will be collected within the discount period the entry will be:
Cash (P70,000 x .98). ............ P68,600
Sales Discount ........................ 1,400
Accounts Receivable ...................... P70,000
Collection of account within the discount period.

What if collection is beyond the discount period?

Cash
.............................. P7
0,000 Accounts
Receivable
.............................. P7
0,000
Collection of account beyond the
discount period (note that the sales
discount is forfeited)

Illustration 3. On Feb. 5, 2020 sold MDSE amounting to P75,000 terms: 2/10, n/30 FOB destination
freight collect. Amount of freight paid by the buyer is P3,700.