Question

Discounts Mad Rush 10 poi Philip Glass Inc. sells musical equipment and sold $80,000 worth of equipment on June 12th on account. To encourage payment, Glass typically offers cash discount terms of 1/10, n/30. Create the necessary journal entries for the sale and collection of payment assuming Glass uses the gross method and the customer pays on June 19th (5 points) Now assume that Glass uses the net method and payment occurs on June 19th. Create the necessary journal entries.

Answer 1

Under gross method, cash discount offered is not included while recording sales. That is, the sale is recorded at gross value. Later if the debtor pays up within the credit period, the discount is accounted for at this point. Following are journal entries:-

Further 1/10, n/30 meants, if the debtor pays within 10 days he gets a discount of 1%. Since paid within 7 days, he is eligible for discount.

Credit Debit $ 80,000.00 Date Particulars Jun-12 Accounts Receivable To Credit Sales Being Credit sales booked under gross method $ 80,000.00 $ 79,200.00 S 800.00 Jun-19 Cash Alc Sales Discount To Accounts Receivable Being Cash receipts from debtors recorded $80,000.00

Credit Debit $ 80,000.00 Date Particulars Jun-12 Accounts Receivable To Credit Sales Being Credit sales booked under gross method $ 80,000.00 $ 79,200.00 S 800.00 Jun-19 Cash Alc Sales Discount To Accounts Receivable Being Cash receipts from debtors recorded $80,000.00

Date	Particulars	Debit	Credit
Jun-12	Accounts Receivable	$ 80,000.00
	To Credit Sales		$ 80,000.00
	Being Credit sales booked under gross method
Jun-19	Cash A/c	$ 79,200.00
	Sales Discount	$      800.00
	To Accounts Receivable		$ 80,000.00
	Being Cash receipts from debtors recorded