From pages 5-1 and 5-2 of the VLN, which of the following is FALSE as it relates to a sales discount?Group of answer choicesA. It is an incentive to credit customers (customers who purchased on account) to encourage them to pay their invoice early.B. It is always recorded at the time of the sale.C. It is a contra revenue.D. It only applies to credit customers (customers who purchased on account). PART A: Recognizing Accounts ReceivableRevenue Recognition Review from chapter 31. Provide a good or service2. Collection is probable (being realized or realizable)The company will recognize the revenue at the agreed uponprice, review from chapter 4.Accounts Receivables (A/R) (also called trade receivables)-arise from Credit Sales (providing a good or service andallowing the customer to pay later) also known as "sales onaccount."Recording a credit sale (review from chapter 2 and 3)Mow & Grow provides $500 of monthly lawn maintenanceservices for Customer A. Customer A does not pay at the timeservices are rendered.Accounts Receivable (A+)Lawn Maintenance Revenue (R+àSE+)500500Other Receivables-Nontrade receivables (less common)-tax refunds receivable-interest receivable-loans extended to others-Notes receivable (formal credit arrangement)Trade Discount–representsreduction in price foraproducts/services. The purpose of a trade discount is to increasesales (bulk purchases, etc.) or attract new customers. A tradediscount is not an account (will not show on a financialstatement).Sales discounts (Contra Revenue)-reduces the amount thecustomer owes the company if paid within a specific timeperiod. The purpose of a sales discount is to encourage creditcustomers to pay early. Sales discounts only apply to creditsales.2/10, n30Practice:Mow & Grow offers a 20% discount on their $500 monthlylawn maintenance service to new customers for the first monthof service. All customers are provided services on account andare offered a sales discount of 2/10, n30. Customer B takesadvantage of the discount and gets her lawn maintained forJanuary. Mow & Grow records the revenue at the reducedamount ($500 x (1-.20) = $400). Mow & Grow invoicesCustomer B on January 31st and she pays on February 7h.Mow & Grow records the revenue on January 31stAccounts Receivable (A+)Lawn Maintenance Revenue (R+àSE+)T400Mow & Grow records the collection on February 7thCash (A+)Sales discount (XR+àSE-)392Accounts Receivable (A-)400Customer B has paid her account in full. By paying her invoice within 10 days she takes advantage ofthe sales discount, she saves $8, 2% of the invoice amount. (S400 x .02 = $8) Net Revenue or Net SalesEffect of the lawn maintenance and cash payment on the incomestatement:Lawn Maintenance RevenueSales discount (contra revenue)Net Lawn Maintenance Revenue $392$4008|Sales Returns and Sales Allowances (Contra Revenue)RevenueRevenue (sometimes called "Gross sales" or “Sal- contra revenuesNet RevenueSales Returns and Sales Allowances- Sales discountsNet SalesIf no contra revenue accounts are present "Sales" and "NetSales" would be the same amount. (I.e., Sales – 0 = Net Sales.)PracticeT-Mart reported the following amounts at the end of the year:Total sales = $650,000; sales discounts = $15,000; accountsreceivable = $50,000; sales returns = $40,000; sales allowances= $20,000; accumulated depreciation = $9,000. Determine netsales for T-Mart:End of Period Adjustment for Contra RevenuesRecord an adjusting entry for estimated contra revenues forsales made during the period.

Question

From pages 5-1 and 5-2 of the VLN, which of the following is FALSE as it relates to a sales discount?Group of answer choicesA. It is an incentive to credit customers (customers who purchased on account) to encourage them to pay their invoice early.B. It is always recorded at the time of the sale.C. It is a contra revenue.D. It only applies to credit customers (customers who purchased on account). PART A: Recognizing Accounts ReceivableRevenue Recognition Review from chapter 31. Provide a good or service2. Collection is probable (being realized or realizable)The company will recognize the revenue at the agreed uponprice, review from chapter 4.Accounts Receivables (A/R) (also called trade receivables)-arise from Credit Sales (providing a good or service andallowing the customer to pay later) also known as &#34;sales onaccount.&#34;Recording a credit sale (review from chapter 2 and 3)Mow & Grow provides $500 of monthly lawn maintenanceservices for Customer A. Customer A does not pay at the timeservices are rendered.Accounts Receivable (A+)Lawn Maintenance Revenue (R+àSE+)500500Other Receivables-Nontrade receivables (less common)-tax refunds receivable-interest receivable-loans extended to others-Notes receivable (formal credit arrangement)Trade Discount–representsreduction in price foraproducts/services. The purpose of a trade discount is to increasesales (bulk purchases, etc.) or attract new customers. A tradediscount is not an account (will not show on a financialstatement).Sales discounts (Contra Revenue)-reduces the amount thecustomer owes the company if paid within a specific timeperiod. The purpose of a sales discount is to encourage creditcustomers to pay early. Sales discounts only apply to creditsales.2/10, n30Practice:Mow & Grow offers a 20% discount on their $500 monthlylawn maintenance service to new customers for the first monthof service. All customers are provided services on account andare offered a sales discount of 2/10, n30. Customer B takesadvantage of the discount and gets her lawn maintained forJanuary. Mow & Grow records the revenue at the reducedamount ($500 x (1-.20) = $400). Mow & Grow invoicesCustomer B on January 31st and she pays on February 7h.Mow & Grow records the revenue on January 31stAccounts Receivable (A+)Lawn Maintenance Revenue (R+àSE+)T400Mow & Grow records the collection on February 7thCash (A+)Sales discount (XR+àSE-)392Accounts Receivable (A-)400Customer B has paid her account in full. By paying her invoice within 10 days she takes advantage ofthe sales discount, she saves $8, 2% of the invoice amount. (S400 x .02 = $8) Net Revenue or Net SalesEffect of the lawn maintenance and cash payment on the incomestatement:Lawn Maintenance RevenueSales discount (contra revenue)Net Lawn Maintenance Revenue $392$4008|Sales Returns and Sales Allowances (Contra Revenue)RevenueRevenue (sometimes called &#34;Gross sales&#34; or “Sal- contra revenuesNet RevenueSales Returns and Sales Allowances- Sales discountsNet SalesIf no contra revenue accounts are present &#34;Sales&#34; and &#34;NetSales&#34; would be the same amount. (I.e., Sales – 0 = Net Sales.)PracticeT-Mart reported the following amounts at the end of the year:Total sales = $650,000; sales discounts = $15,000; accountsreceivable = $50,000; sales returns = $40,000; sales allowances= $20,000; accumulated depreciation = $9,000. Determine netsales for T-Mart:End of Period Adjustment for Contra RevenuesRecord an adjusting entry for estimated contra revenues forsales made during the period.

Accepted Answer

Solution
Sales discount refers to the financial recording of reducing the sales price due to early…