Question

During the months of January and February, Hancock Corporation sold goods to three customers. The sequence of events was as follows Jan. 6 Sold goods for $700 to S. Green and billed that amount subject to terms 3/10, n/30. 6 Sold goods to M. Munoz for $640 and billed that amount subject to terms 3/10, n/30. 14 Collected cash due from S. Green. Feb. 2 Collected cash due from M. Munoz. 28 Sold goods for $460 to R. Reynolds and billed that amount subject to terms 3/10, n/45. Required: Assuming that Sales Discounts is treated as a contra-revenue, compute net sales for the two months ended February 28, Net sales

Answer 1

Answer -

Net sales = $1779

Calculation:

Contra revenue is a deduction from total revenue or gross revenue for obtaining net revenue or net sales.

Here, sales discount is contra revenue.

So,

Net sales = Sales revenue (total revenue) - Sales discount

Now,

Sales discount:

1. Jan. 06: Sold goods for $700 to S. Green and billed that amount subject to terms 3/10, n/30.

Sales revenue = $700 and amount subject to terms 3/10, n/30.

Here,

3/10, n/30 i.e.

3 = sale discount in percentage

10 = Discount period

n = Net or full amount

30 = Maximum credit period

Here, On January 14 collected cash due from S. Green i.e. within discount period

Therefore,

Sales discount = Sales revenue * 3% = $700 * 3% = $21

2. Jan. 06: Sold goods for $640 to M. Munoz and billed that amount subject to terms 3/10, n/30.

Sales revenue = $640 and amount subject to terms 3/10, n/30.

Here,

3/10, n/30 i.e.

3 = sale discount in percentage

10 = Discount period

n = Net or full amount

30 = Maximum credit period

Here, On February 02 collected cash due from M. Munoz i.e. outside discount period

So, no discount is given to M. Munoz

3. Feb. 28: Sold goods for $460 to R. Reynolds and billed that amount subject to terms 3/10, n/45.

Here, sale is made but payment for sale is due therefore sales discount not computed yet.

Therefore,

Net sales = Sales revenue (total revenue) - Sales discount

Net sales = [$700 + $640 + $460] - $21

Net sales = $1779