Question

# Smith CO. sold \$100,000 on December 26, 2019 to a client with the sales discount terms...

Smith CO. sold \$100,000 on December 26, 2019 to a client with the sales discount terms 3/10 net 40. What do the terms mean? If the client paid on January 4, 2020 which method (Gross or Net) makes higher profit for 2019? What is the journal entry to record the cash received on January 4, 2020 under the Gross method and under the Net method?

The terms of the sale 3/10 means that if the amount is paid by the client within 10 days, he will get 3% discount. If he pays after 10 days there will be no discount.

Sales recorded under gross method = \$100,000

Sales recorded under net method = \$100,000 - 3% = \$97,000

Sales under gross method is higher for 2019. Gross method makes higher profits in 2019.

Journal entry on Jan 4th:

 Gross method Accounts and Explanation Debit Credit Cash \$97,000 - Sales discount \$3,000 - Accounts receivable - \$1,00,000
 Net method Accounts and Explanation Debit Credit Cash \$97,000 - Accounts receivable - \$97,000

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