Question

On April 2, Kelvin sold $36500 of inventory items on credit with the terms 3/10, net 30. Payment on $21900 sales was received on April 8 and the remaining payment on $14600 sales was received on April 27. Assuming Kelvin uses the net method of accounting for sales discounts, the entry recorded on April 27 would include a:

debit to Accounts Receivable and credit to Sales Revenue for $36500.
debit to Accounts Receivable and credit to Sales Discount Forfeited for $438.
debit to Cash and credit to Sales Discount Forfeited for $1095.
debit to Cash and credit to Accounts Receivable for $14162.

Answer 1

On April 27, the entry recorded for the remaining payment on April 27 would be a debit to Cash and credit to Accounts Receivable for $14,162.

Step-by-step explanation:

In this scenario, Kelvin sold $36,500 of inventory items on credit with the terms 3/10, net 30. This means that if the customer pays within 10 days, they are eligible for a 3% discount. If the payment is made after 10 days, the full amount is due within 30 days.

On April 8, Kelvin received $21,900 payment for sales made. Since this payment was made within the discount period, no discount forfeited is recorded. Therefore, the entry on April 8 would be a debit to Accounts Receivable for $21,900 and a credit to Cash for $21,900.

On April 27, Kelvin received the remaining payment of $14,600. Since this payment was made after the discount period, Kelvin has to record the discount forfeited. The entry on April 27 would be a debit to Cash for $14,162 (the remaining payment after deducting the discount of $438) and a credit to Accounts Receivable for $14,600.