Pharoah Company sells merchandise on account for $3600 to with credit terms of 2/14, n/30. Blue Spruce Corp. returns $600 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Pharoah Company make upon receipt of the check

The journal entry to record the merchandise return and the payment should be:

Dr Cash 2,940

Dr Sales discount 60

Dr Sales returns and allowances 600

Cr Accounts receivable 3,000

The second entry must be made to record the increase in inventory:

Dr Merchandise inventory 600

Cr Sales returns and allowances 600

Explanation:

The sales returns and allowances account is used to record returned merchandise, while the sales discount account is used to record discounts for early payments or other types of sales discounts.