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24 February, 18:59

Buffalo Corporation shipped $21,200 of merchandise on consignment to Gooch Company. Buffalo paid freight costs of $1,900. Gooch Company paid $520 for local advertising, which is reimbursable from Buffalo. By year-end, 61% of the merchandise had been sold for $21,400. Gooch notified Buffalo, retained a 10% commission, and remitted the cash due to Buffalo.

Prepare Buffalo entry when the cash is received.

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  1. 24 February, 19:19
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    1) Cash Dr. $19,260 (21,400-2,140)

    Commission Expense Dr. $2,140 (10% of 21,400)

    Sales Cr. $21,400

    2) COGS Dr. $12932 (61% of 21,200)

    Inventory Cr. $12932

    Explanation:

    Cash received to Buffalo Corp. shall be total sales i. e. $21,400 less the commission retained by Gooch Co. i. e. 10% of $21,400.

    Buffalo Corp. shall expense out the commission and Sales shall be recorded by the gross amount.

    the second entry shows Inventory being credited by the amount of Cost i. e 61% of goods shipped to Gooch (61% of $21,200).
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