Question

Harvey's Wholesale Company sold supplies of $46,000 to Northeast Company on April 12 of the current year, with terms 1/15, n/60. Harvey uses the net method of accounting for cash discounts. What entry would Harvey's make on April 23, assuming the customer made the correct payment on that date?

Answer 1

Harvey's Wholesale Company will debit cash and credit accounts receivable for $45,540 on April 23, as the payment falls within the discount period and the net method of accounting for cash discounts has been used.

Step-by-step explanation:

The student's question pertains to the journal entry that Harvey's Wholesale Company should make on April 23, given that the customer, Northeast Company, makes the correct payment according to the terms given with the initial sale (1/15, n/60) on April 12. Since the payment falls within the discount period of 15 days, the customer can take advantage of a 1% discount off the $46,000 invoice price. Harvey's uses the net method, therefore, the invoice would have been recorded at its net amount: $45,540 ($46,000 less 1% discount of $460). On April 23, the journal entry to record the receipt of payment from Northeast Company will be a debit to cash for the amount received, which is $45,540, and a credit to accounts receivable for the same amount.

Answer 2

Cash A/c Dr. $45,540

Discount Allowed Expense A/c Dr. $460

To North East Company A/c $46,000

Cash discount allowed recorded on 23 April.

Step-by-step explanation:

As for the provided information, Sales value = $46,000

Discount = 1% as payment is received within 15 days.

Therefore, value of discount = $46,000
`*` 1% = $460

While recording sales entry, Northeast Company would have been debited and sales would be credited with $46,000

Now, while receiving payments,

Entry will be

Cash A/c Dr. $45,540

Discount Allowed Expense A/c Dr. $460

To North East Company A/c $46,000

Cash discount allowed recorded on 23 April.