Question

when a customer doesn't pay a bill for a product or service as expected, how should a company handle this on the accounting records?

Answer 1

When a customer doesn't pay a bill for a product or services as expected then the company records the amount in difference as Sales discount.

Sales Discount is debited with the amount less paid i.e, the difference between cash received and Accounts receivable.

For example:- A company issues a $10,000 invoice to a customer. But the customer pays an amount of $9800. So the difference of $200 will be debited as Sales Discount.

Journal Entry:-

At the time of sales:- Account receivable $10,000

Sales $ 10,000

At the time of receipt of payment received $9800:-

Cash $9,800

Sales Discount $200

Account Receivable $10,000

The impact on Financial Statement:-

• Account receivable will be set -off
• Cash will go to the Current Asset in the balance sheet
• Sales Discount will go to debit side of Income Statement and reducing the amount of revenue by $200.

Gross Sales :- $10,000

Less; Sales Discount $200

Net Sales:- $9800