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A seller recorded a $750 sale under the GROSS method (terms 2/10 net 30) but the customer unexpectedly pays within the discount period. What entry records the receipt?
ADebit Cash $750; credit Accounts Receivable $750
BDebit Cash $735; debit Sales Discounts $15; credit Accounts Receivable $750
CDebit Cash $735; credit Accounts Receivable $735
DDebit Cash $750; debit Sales Discounts $15; credit Accounts Receivable $735
Answer & Solution
Correct answer: B. Debit Cash $735; debit Sales Discounts $15; credit Accounts Receivable $750
1. Receivable on the books = $750; discount taken = $750 x 2% = $15.
2. Cash actually received = $750 - $15 = $735.
3. The $15 shortfall is recorded in Sales Discounts (a contra revenue account) so the full $750 receivable can be cleared.
4. Option B ignores the discount; C leaves $15 of receivable uncleared; D has cash and receivable the wrong way round.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.3.2 "Discounts - The Seller", p.99_
Related questions
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