On July 1, Ferguson Company sold merchandise in the amount of $5,800 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ferguson uses the perpetual inventory system and the gross method. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 is (are) :

Perpetual inventory system : Under this inventory system, the count of inventory is done on daily basis rather than on half yearly or yearly basis so that any error or duplication can be found.

Explanation:

The entry or entries that Ferguson must make on July 5 is (are) shown below:

1. The journal entry for merchandise returned is shown below:

July 5 : Sales return and allowances A/c Dr 500

To Accounts Receivable 500

(Being merchandise inventory is sold)

2. The journal entry for selling of merchandise is shown below:

July 5 : Merchandise inventory A/c Dr $350

To Cost of good sold $350

(Being goods are sold)