Question

Assume a $1,000 sale is made on account to a customer with terms of 2/10,n/30 and is subsequently collected net of the discount within ten days of the sale. If the receivable had been originally recorded at the gross sales amount of $1,000, the journal entry to record the cash collection would include a debit to what accounts and for how much?

Answer 1

The journal entry to record the cash collection would include a debit to Accounts Receivable for $1,000 and a credit to Cash for $980.

Step-by-step explanation:

The journal entry to record the cash collection would include a debit to Accounts Receivable for $1,000 and a credit to Cash for $980.

Since the receivable was collected within ten days and the terms are 2/10,n/30, the customer is entitled to a 2% discount if the payment is made within ten days. The original receivable of $1,000 would be reduced by the 2% discount, which is $20 ($1,000 * 2%).

The entry would then be recorded as a debit to Accounts Receivable for $980 ($1,000 - $20) and a credit to Cash for $980 ($1,000 - $20).