Question

On September 8, a company provides services on account to a customer for $3,000, terms 3/10, n/30. The customer pays for those services on September 15. Record the transactions for the company when the services are provided on September 8 and when the cash is collected on September 15. DR September 8th A/R $ 3,000.00 Service Rev $ 3,000.00 September 15th Cash Sales discount A/R $ 2,910.00 $ 90.00 $ 3,000.00
Can someone please explain that answer? Also the meaning of 3/10 and n/30?

Answer 1

3/10, net 30 are the terms of sale. It means that the payment terms are 30 days (net 30). Also, if the customer pays the invoice within 10 days of the invoice date i.e. if he pays on or before September 18, then there will be 3% discount on the invoice amount.

Here the customer pays the invoice amount on September 15 i.e. before September 18, so he will be allowed a discount of 3%.

Discount amount = $3000 * 3% = $90

Total cash received from the customer = $3000 - $90 = $2910

In the journal entries, on September 8, entry for sale of services will be made by debiting accounts receivable and crediting service revenue by the full invoice amount.

On September 15, when the customer makes payment, then cash coming in the business will be debited with the total amount received (after allowing discount). Discount of $90 will also be debited. Accounts receivable will be credited with $3000.