Question

Company X sold merchandise for $50,000 with terms 3/30, n/90 on January

1. On January 29, Company X received half the payment in cash. On March

1, they received the remaining half. Prepare the journal entries to record the

sale and the receipt of cash under (1) the gross method and (2) the net method.

What effect does using the gross method v

s. the net method have on the company urrent ratio after the sale?

After the receipt of cash?

Answer 1

Ans:

1. Gross method:

Date	Account title and explanation	Debit($)	Credit($)
Jan 1	Accounts receivables	50,000
	Sales		50,000
January 29	Cash	24,250
	Sales discount	750
	Accounts receivable		25,000
March 1	Cash	25,000
	Account receivables		25,000

2. Net method:

Date	Account title and explanation	Debit($)	Credit($)
Jan 1	Account receivables	48,500
	Sales		48,500
Jan 29	Cash	24,250
	Account receivables		24,250
March 1	Cash	25,000
	Sales		750
	Account receivables		24,250

Note: at the time cash is received, there is no difference between the net method and the gross method.accounts receivable is recorded at a lower value at the time the sale is made, as compared to the gross method.( current ratio is lower); in net method current ratio is lower.