Question

4. Kim Inc, sent an invoice of $8,000 credit sales made on December 1". Terms are 2/10; n/30. The customer made a payment on December 13th for sales originally billed at $5,500 and a payment on December, 30 for sales originally billed at $1,500. Kim Inc. used the net method for accounting for cash discounts. Show the adjusting entry made on December 31"' (the year- end). [7 points)

Answer 1

Net Method accounting means where buyer or seller is given discount on early payment of there bills and the entry is recorded in books during the raise of bill by discounting the invoice , and if buyer or seller as per there books fall short for paying the amount during the date of cash discount can be received , the adjusting entry of discount lost is passed .

Journal entry

In given question credit period is given 2/10; n/30

which means if bill paid with in 10days 2 % of discount will be given and otherwise bill to payed with in 30days

while raising entry was passe

on 1 dec

Account Receivable A/c DR 7840

To Sales revenue A/c 7840

(being Sales made and invoice raised by giving discount)

On 13 dec

Cash A/c Dr 5500

To Account Receivable A/c 5390

To Sales discount Forfeited A/c 110

( being cash received and customer lose the cash discount )

On 30dec

Cash A/c Dr 1500

To Account Receivable A/c 1470

  To Sales discount Forfeited A/c 30

( being cash received and customer lose the cash discount )

Adjusting entry for transaction 31st dec

Account Receivable A/c Dr 20

To Sales Discount Forfeited A/c 20

( being cash discount forfeited )

As the remaining payment of $ 1000 was not made on the due date we will forfeite the remaining sales discount