Question

When a customer is given a price reduction on an item (for example, a damaged item), the bookkeeper will use which one of the following accounts? a. Purchase Allowance b. Purchase Discount c. Sales Discount d. Sales Allowance

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When a customer is given a price reduction on an item (for example, a damaged item), the bookkeeper will use the Sales Allowance account.

Letters a and b is incorrect because that refers to purchases made by the company itself. Letter c is incorrect because that refers to cash discounts availed by the customer.

Answer: d. Sales Allowance

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Green Wave Company plans to own and operate a storage rental facility. For the first month of operations, the company has the following transactions.

1. January 1Issue 10,000 shares of common stock in exchange for $42,000 in cash.2. January 5Purchase land for $24,000. A note payable is signed for the full amount.3. January 9Purchase storage container equipment for $9,000 cash.4. January 12Hire three employees for $3,000 per month.5. January 18Receive cash of $13,000 in rental fees for the current month.6. January 23Purchase office supplies for $3,000 on account.7. January 31Pay employees $9,000 for the first month’s salaries.\begin{array}{ll} \text{1. January 1} & \text{Issue 10,000 shares of common stock in exchange for \$42,000 in cash.}\\ \text{2. January 5} & \text{Purchase land for \$24,000. A note payable is signed for the full amount.}\\ \text{3. January 9} & \text{Purchase storage container equipment for \$9,000 cash.}\\ \text{4. January 12} & \text{Hire three employees for \$3,000 per month.}\\ \text{5. January 18} & \text{Receive cash of \$13,000 in rental fees for the current month.}\\ \text{6. January 23} & \text{Purchase office supplies for \$3,000 on account.}\\ \text{7. January 31} & \text{Pay employees \$9,000 for the first month's salaries.}\\ \end{array}

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