Suppose Company A sells shoes that are manufactured by Company B. Company A and Company B made an agreement that Company A would sell at a minimum, 610 pairs of shoes every three months. To help encourage Company A to sell more of Company B’s shoes, Company B will pay Company A an extra $10 per pair of shoes that are sold above the minimum 610 per three months. This extra $10 per pair of shoes sold above the minimum amount agreed upon is known as vendor allowance.
Let’s say Company A from above ended up selling 790 pair of shoes from April 1, 2005 to July 1, 2005. Within these three months Company A sold 180 pair of shoes over the minimal agreed upon amount of 610. Company B pays in cash $1,800 (vendor allowance) to Company A for the additional amount of shoes Company A sold. What would the journal entry look like?