Question

The collection of a $1,000 account after the 2 percent discount period will result in a

A) debit to Cash for $980.
B) credit to Accounts Receivable for $1,000.
C) credit to Cash for $1,000.
D) debit to Sales Discounts for $20.

Answer 1

The correct entry for collecting a $1,000 account after a 2 percent discount is a debit to Cash for $980, a credit to Accounts Receivable for $1,000, and a debit to Sales Discounts for $20.

Step-by-step explanation:

The question pertains to the accounting treatment of a collection of a $1,000 account after taking into account a 2 percent discount. When a business collects on an account and offers a discount, the correct journal entry would involve a debit to Cash for the amount actually received after the discount, and a credit to Accounts Receivable for the full invoice amount.

In this case, the cash received will be less due to the discount. Therefore, the entry would be a debit to Cash for $980 (which is $1,000 minus 2 percent), a credit to Accounts Receivable for $1,000, and additionally, a debit to Sales Discounts for the $20 discount.