AC 210 Lecture Notes - Lecture 22: Accounts Receivable

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silvercicada472

5 Jun 2018

School

University of Alabama

Department

Accountancy

Course

AC 210

Professor

Lisa Mc Kinney

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Sales Discounts

A sales discount is an incentive the seller offers in exchange for prompt payment on

credit sales. Sales discounts are recorded in another centra‐revenue account, enabling

management to monitor the effectiveness of the company's discount policy. Invoices

generally include credit terms, which specify when the customer must pay and define

the sales discount if one is available. For example, the credit terms on the invoice below

are 2/10, n/30, which is read two‐ten, net thirty.

The terms 2/10, n/30 mean the customer may take a two percent discount on the

outstanding balance (original invoice amount less any returns and allowances) if

payment occurs within ten days of the invoice date. If the customer chooses not to take

the discount, the outstanding balance is due within thirty days. An abbreviation that

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Document Summary

A sales discount is an incentive the seller offers in exchange for prompt payment on credit sales. Sales discounts are recorded in another centra revenue account, enabling are 2/10, n/30, which is read (cid:1688)two ten, net thirty. (cid:1689) management to monitor the effectiveness of the company"s discount policy. Invoices generally include credit terms, which specify when the customer must pay and define the sales discount if one is available. For example, the credit terms on the invoice below. The terms 2/10, n/30 mean the customer may take a two percent discount on the outstanding balance (original invoice amount less any returns and allowances) if payment occurs within ten days of the invoice date. If the customer chooses not to take the discount, the outstanding balance is due within thirty days. An abbreviation that sometimes appears in the credit terms section of an invoice is eom, which stands for end of month.

Related Questions

Wiset Company completes these transactions during April of thecurrent year (the terms of all its credit sales are 2/10,n/30).

Apr. 2 Purchased $14,600 of merchandise on credit from NothCompany, invoice dated April 2, terms 2/10, n/60.

Apr. 3 Sold merchandise on credit to Brooke Page Alistair,Invoice No. 760, for $4,600 (cost is $3,100).

Apr. 3 Purchased $1,590 of office supplies on credit fromCuster, Inc. Invoice dated April 2, terms n/10 EOM.

Apr. 4 Issued Check No. 587 to WorldView for advertising expense, $850.

Apr. 5 Sold merchandise on credit to Paula Kohr, Invoice No.761, for $8,900 (cost is $7,600).

Apr. 6 Received an $70 credit memorandum from Custer, Inc., forthe return of some of the office supplies received on April 3.

Apr. 9 Purchased $11,620 of store equipment on credit from HalâsSupply, invoice dated April 9, terms n/10 EOM.

Apr. 11 Sold merchandise on credit to Nic Nelson, Invoice No.762, for $10,200 (cost is $7,300).

Apr. 12 Issued Check No. 588 to Noth Company in payment of itsApril 2 invoice, less the discount.

Apr. 13 Received payment from Page Alistair for the April 3sale, less the discount.

Apr. 13 Sold $6,300 of merchandise on credit to Page Alistair(cost is $4,500), Invoice No. 763.

Apr. 14 Received payment from Paula Kohr for the April 5 sale,less the discount.

Apr. 16 Issued Check No. 589, payable to Payroll, in payment ofsales salaries expense for the first half of the month, $9,150.Cashed the check and paid employees.

Apr. 16 Cash sales for the first half of the month are $56,070(cost is $40,000). (Cash sales are recorded daily from cashregister data but are recorded only twice in this problem to reducerepetitive entries.)

Apr. 17 Purchased $14,200 of merchandise on credit from GrantCompany, invoice dated April 17, terms 2/10, n/30.

Apr. 18 Borrowed $72,000 cash from First State Bank by signing along-term note payable.

Apr. 20 Received payment from Nic Nelson for the April 11 sale,less the discount.

Apr. 20 Purchased $820 of store supplies on credit from HalâsSupply, invoice dated April 19, terms n/10 EOM.

Apr. 23 Received a $1,000 credit memorandum from Grant Companyfor the return of defective merchandise received on April 17.

Apr. 23 Received payment from Page Alistair for the April 13sale, less the discount.

Apr. 25 Purchased $11,800 of merchandise on credit from NothCompany, invoice dated April 24, terms 2/10, n/60.

Apr. 26 Issued Check No. 590 to Grant Company in payment of itsApril 17 invoice, less the return and the discount.

Apr. 27 Sold $3,480 of merchandise on credit to Paula Kohr,Invoice No. 764 (cost is $2,490).

Apr. 27 Sold $8,700 of merchandise on credit to Nic Nelson,Invoice No. 765 (cost is $4,230).

Apr. 30 Issued Check No. 591, payable to Payroll, in payment ofthe sales salaries expense for the last half of the month,$9,150.

Apr. 30 Cash sales for the last half of the month are $72,500(cost is $66,200).

Assume that Wiset Co. uses the perpetual inventory system.

1.1 Review the April transactions of Wiset Company and enterthose transactions that should be journalized in the purchasesjournal.

1.2 Review the April transactions of Wiset Company and enterthose transactions that should be journalized in the cashdisbursements journal.

1.3 Prepare a general journal. Review the April transactions ofWiset Company and enter those transactions that should bejournalized in the general journal.

2. Enter the March 31 balances of Cash ($85,000), Inventory($138,000), Long-Term Notes Payable ($123,000), and B. Wiset,Capital ($100,000). Post the total amounts from the journal in thefollowing general ledger accounts and in the accounts payablesubsidiary ledger accounts for Halâs Supply, Noth Company, GrantCompany and Custer, Inc.

4.1 Prepare a trial balance.

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