Ask Question
21 September, 15:07

On May 10, 2020, Windsor Co. enters into a contract to deliver a product to Greig Inc. on June 15, 2020. Greig agrees to pay the full contract price of $1,810 on July 15, 2020. The cost of the goods is $1,050. Windsor delivers the product to Greig on June 15, 2020, and receives payment on July 15, 2020. Prepare the journal entries for Windsor related to this contract. Either party may terminate the contract without compensation until one of the parties performs.

+2
Answers (1)
  1. 21 September, 16:14
    0
    On June 15

    Debit Accounts receivable $1,810

    Credit Revenue account $1,810

    Being entries to recognize revenue earned

    Debit Cost of sale $1,050

    Credit Inventory $1,050

    Being entries to record cost of item sold

    When cash is received on July 15,

    Debit Cash account $1,810

    Credit Accounts receivable $1,810

    Being entries to record cash received

    Explanation:

    The sale of an item of inventory has a dual effect on a company's books. These effects are the recognition of sales revenue and cost of sales.

    Revenue is only earned and recognized when the item agreed has been delivered.

    Hence, on June 15 after the delivery of the product, revenue is recognized by Windsor even though cash is not received. Cash receipt is recorded on July 15.

    When revenue is earned but cash is yet to be received,

    Debit Accounts receivable

    Credit Revenue account

    When cash is received,

    Debit Cash account

    Credit Accounts receivable.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “On May 10, 2020, Windsor Co. enters into a contract to deliver a product to Greig Inc. on June 15, 2020. Greig agrees to pay the full ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers