A customer purchased bench from Harrington Stores for $1,250. The bench had originally cost Harrington $450. When the bench was delivered, the customer noted that the color was unsatisfactory in that it did not match that of the model in the store. The customer asked for an allowance and kept the bench, while Harrington gave the customer $150 cash. Prepare the appropriate journal entry recorded by Harrington for this allowance.

Journal entry recorded by Harrington for this allowance:

Revenue $ 450 (debit)

Account Receivable / Cash $450 (credit)

Explanation:

Recording the Sale

When customer purchased bench from Harrington Stores for $1,250 the journal entry is shown as:

Account Receivable/Cash $1250(debit)

Revenue $ 1250 (credit)

This Journal recognises an Income - Revenue and an Asset - Account Receivable when to depict the flow of economic benefits into the entity

Cost of Sale $450 (debit)

Inventory $450(debit)

The above journal records the cost of sale and de-recognises the assets of inventory Bench after the sale is made.

Recording the Allowance

When the allowance is granted economic benefits are flowing out of the entity as a result of decrease in Assets of Cash or Assets of Account Receivable.

We also derecognise the revenue attached to the allowance

Revenue $ 450 (debit)

Account Receivable/Cash $450 (credit)

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