Question

Central Company sold goods for $5,000 to Western Company on March 12 on credit. Terms of the sale were 2/10, n/30. At the time of the sale, Central recorded the transaction by debiting Accounts Receivable for $5,000 and crediting Sales Revenue for $5,000. Western paid the balance due, less the discount, on March 21. Central's journal entry on March 21 would include a debit to:

A. Cash for $4,900.
B. Accounts Receivable for $4,900.
C. Cash for $5,000.
D. Accounts Receivable for $5,000.

Answer 1

The answer is option A. Cash for $4,900.

Step-by-step explanation:

The answer to this question is option A. Cash for $4,900.

When Western Company pays the balance due, less the discount, Central will receive $4,900 in cash. This is because the terms of the sale were 2/10, n/30, which means that Western Company can take a 2% discount if payment is made within 10 days. In this case, Western Company paid within the discount period, so Central Company will receive $5,000 - ($5,000 x 0.02) = $4,900 in cash.