Secure I https//cvg.ceng -take Sales Discounts: Net Method On January 16, two cr

Question

Secure I https//cvg.ceng -take Sales Discounts: Net Method On January 16, two credit sales were made, one for $300 and one for $400. Terms for both sales were 3/15, n/30. Cash for the $300 sale was collected on January 25; cash for the $400 sale was collected on February 14 Hide Make all journal entries necessary to record both the sales and the cash collections. Use the net method of accounting for sales discounts. If an amount box does not require an entry, leave it blank Jan, 16 Feb. 14 oe???ase re to search

Explanation / Answer

Solution:

Net Method is a way to record purchase or sales with a cash discount. The net method assumes that customer always takes advantage of the discounted cash price and record the sale or purchase at the discounted price.

Initially the sale or purchase is recorded at net of cash discount.

Date

General Journal

Debit

Credit

Jan.16

Accounts Receivable

$679

Sales Revenue (300+400)*97% net of tax

$679

(Being sales are recorded net of discount under Net Method)

Jan.25

Cash

$291

Accounts Receivable (300*97%)

$291

(Being cash received from customer within discounting period)

Feb.14

Cash

$400

Accounts Receivable (400*97%)

$388

Cash Discount (Income) (bal figure)

$12

(Cash are collected after the terms, hence customer is not entitle to avail the benefit of discount. Under Net Method we record the transaction initially net of discount so we need to book Cash Discount (Income) in our books because customer paid full amount of invoice i.e. $400

Date

General Journal

Debit

Credit

Jan.16

Accounts Receivable

$679

Sales Revenue (300+400)*97% net of tax

$679

(Being sales are recorded net of discount under Net Method)

Jan.25

Cash

$291

Accounts Receivable (300*97%)

$291

(Being cash received from customer within discounting period)

Feb.14

Cash

$400

Accounts Receivable (400*97%)

$388

Cash Discount (Income) (bal figure)

$12

(Cash are collected after the terms, hence customer is not entitle to avail the benefit of discount. Under Net Method we record the transaction initially net of discount so we need to book Cash Discount (Income) in our books because customer paid full amount of invoice i.e. $400

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