Question

On November 10 of the current year, Blue Co. sold materials to a customer for $8,000 with credit terms 2/10, n/30. Blue Co. uses the net method of accounting for sales discounts.

What entry would Blue Co. make on December 10, assuming the correct payment was received on that date?

Multiple Choice

• Cash	8,160
  Accounts receivable		8,000
  Sales discounts forfeited		160

• Cash	8,000
  Accounts receivable		7,840
  Sales discounts forfeited		160

• Cash	8,000
  Accounts receivable		8,000

• Cash	8,000
  Accounts receivable		7,840
  Discounts revenue		160

Answer 1

Sales = $8,000

Date of sale = November 10

Terms = 2/10, n/30

Date of payment = December 10

Since payment was received after the discount period of 10 days, hence sales discount will be forfeited.

Sales discount forfeited = Sales x Sales discount

= 8,000 x 2%

= $160

Sales discount previously debited, would be credited, now when actual payment was received.

The following journal entry would be made on December 10 by Blue Co.:

Cash	8,000
Accounts receivable		7,840
Sales discounts forfeited		160

Second option is correct.