Supply Club, Incorporated, sells a variety of paper products, office supplies, and other products used by businesses and individual consumers. During July 2024, it started a loyalty program through which qualifying customers can accumulate points and redeem those points for discounts on future purchases. Redemption of a loyalty point reduces the price of one dollar of future purchases by 20% (equal to 20 cents). Customers do not earn additional loyalty points for purchases on which loyalty points are redeemed. Based on past experience, Supply Club estimates a 60% probability that any point issued will be redeemed for the discount. During July 2021, the company redeemed 13,800 points and sold additional product of $172,500, so it recorded $186,300 of revenue. The aggregate stand-alone selling price of the purchased products is $186,300. Seventy percent of sales were cash sales, and the remainder were credit sales.
Required: 1. & 2. Prepare Supply Club’s journal entry to record July and August sales. During August, customers redeem loyalty points on $82,800 of merchandise. Sixty-five percent of those sales were for cash, and the remainder were credit sales.
To prepare Supply Club's journal entry to record July and August sales, we need to consider the revenue from the sales and the loyalty redemption. Let's start by calculating the revenue and loyalty points redemption for each month.
July Sales:
Journal Entry for July Sales:
For cash sales:
| Date | Account | Debit | Credit |
|---|---|---|---|
| July | Cash | $120,750 | |
| July | Sales Revenue | $120,750 |
| Date | Account | Debit | Credit |
|---|---|---|---|
| July | Accounts Receivable | $51,750 | |
| July | Sales Revenue | $51,750 |
Revenue from additional product sold: $82,800
Loy points redeemed: 82,800 / 0.8 $69,000 (Since each redeemed loyalty point reduces the price of one dollar of future purchases by 20% or 20 cents Journal Entry for August Sales:
For cash sales:
| Date | Account | Debit | Credit |
|---|---|---|---|
| August | Cash | $57,960 | |
| August | Sales | $57,960 |
For credit sales: Date | Account | Debit | Credit -----------------------------|--------|--------- August | Accounts Receivable | $24,840| August | Sales Revenue | | $24,
Now, the general journal entries for July and August sales are prepared based on the information provided.
Please note that the journal entries a one-time redemption of loyalty points for each period. For more accurate tracking, the company would need to maintain detailed records of point redemptions throughout the month to capture the timing of the redemptions accurately.
add shortly explanation
The journal entries for July and August sales were prepared based on the revenue from additional product sales and the redemption of loyalty points. It's important to note that the calculation of loyalty points redeemed assumes a one-time redemption for each period. For more accurate tracking, the company would need to maintain detailed records of point redemptions throughout the month to capture the timing of the redemptions accurately.