1. a.![](http://i44.tinypic.com/2ntvbc8.jpg)
On November 15, the business made a sale of 3 Units at $500 each. This means that the total Invoice was $1500 + $150 = $1650
However, on November 18, the Debtor (Lyall’s Imports) returned 1 Leather Chair (due to damage). Therefore:
• Sales Returns – It is a negative Revenue, and since we have “lost” the sale of 1 Chair, we do a Debit entry.
• GST Clearing – Because the Leather Chair has been returned, we no longer owe that GST incurred from the Sale to the ATO. Therefore, we do a Debit entry to GST Clearing to reduce our Liability owed to the ATO.
• Debtors Control – When Debtors Control decreases, we do a Credit entry. This is because our Debtors Control balance has reduced. The Debtor doesn’t owe us the money anymore, since we now have the Stock back in our business again.
• Debtors - Lyall’s Imports (Subsidiary) – The Debtor doesn’t owe us the $550 from the Stock anymore, because they have returned it, and thus received a Credit Note for the return of Stock.
• Stock Control – When Stock Control increases, we do a Debit. Thus, we have now received the Stock again from the Sale, so our Stock Control balance increases.
• Cost of Sales – Do a Credit Entry because the Expense created at the time of the Sale, is now removed. Therefore to reduce an Expense, we do a Credit entry.
Given that the Mark-Up is 100%, we can convert this into simply 1.
Sales = Cost of Sales
1 + Mark-Up
1. c.
Now we switch businesses, and look from the perspective of Lyall’s Imports paying off their debt.
So how much does Lyall’s Imports owe Modern Seating as at November 26? Well, 2 Leather Chairs plus GST. Therefore, $1000 + $100 = $1,100 (Insert this figure straight away in the Creditors Control column, because this is how much we are reducing our Creditors Control by).
We are given the Credit Terms of 2/14, n/30. This means that if the business pays its debt within 14 days, that they will receive a 2% discount, otherwise they must repay the full amount back within 30 days.
Looking at the dates, Layall’s Imports paid back their debt owed by 11 days (which follows the credit terms of receving a discount). Therefore, calculate 2% of the total invoice owed ($1100), and you will get $22. Then obviously the left over amount ($1078), is the amount that Lyall’s Imports actually paid back to Modern Seating.