Final answer:
Sales Discounts Forfeited occurs when a customer fails to utilize the sales discount offered for early payment, resulting in the seller recording this foregone discount as additional revenue.
Step-by-step explanation:
The account Sales Discounts Forfeited comes about when customers do not take advantage of a sales discount that a company offers for early payment.
This is a condition generally stated in the sales terms, such as 2/10, n/30, which means a 2% discount can be taken if the invoice is paid within 10 days; otherwise, the net amount is due within 30 days.
When a customer pays after the discount period has expired, the seller reverses the sales discount (which was initially recorded when the invoice was raised) and reports the amount as Sales Discounts Forfeited.
This revenue account reflects the extra income earned by the seller due to the customer's failure to take the discount. An example would be if an invoice for $1,000 is issued with a 2% discount if paid within 10 days. If the customer pays on the 15th day, the seller would record $20 (2% of $1,000) in the Sales Discounts Forfeited account, as this discount was not utilized by the customer.