Question

17 On November 10 of the current year, Carolina Mills sold materials to a customer for...

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

What entry would Carolina Mills make on December 10, assuming the correct payment was received on that date?

Multiple Choice

  • Cash 8,000
    Accounts receivable 7,840
    Discounts revenue 160
  • Cash 8,000
    Accounts receivable 7,840
    Sales discounts forfeited 160
  • Cash 8,160
    Accounts receivable 8,000
    Sales discounts forfeited 160
  • Cash 8,000
    Accounts receivable 8,000
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Answer #1
Nov. 10 Accounts receivable ( 8000 * 98 % ) 7840
Sales revenue 7840
Dec. 10 Cash 8000
Sales discount forfeited 160
Accounts receivable 7840

Option B is correct.

Explanation :-

The payment was made beyond 10 days, therefore, no Sales discount will be received by the buyer now and he has to make full payment of $ 8000 to the seller . Though the seller used net method of accounting for sales discounts, therefore, Accounts receivable account was standing by the amount of $ 7840 only and hence the difference of $ 160 will go in Sales discount forfeited account.

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