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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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( Appendix 5A) Sales Discounts

Harry Gardner provides tax services for small businesses. This year’s tax season has proved especially lucrative for Harry; he earned $45,000 for providing his services. Harry uses terms of 1/10, n/30 in billing his customers.

Required:

1. Prepare the necessary journal entries to record the sale, assuming Harry does not expect his customers to pay within the discount period.

2. Prepare the necessary journal entries to record collection of the receivable assuming the customer pays within 10 days.

3. Prepare the necessary journal entries to record collection of the receivable assuming the customer pays after 10 days.

To determine

(a)

Sales discounts:

The term 1/10,n/30 means that if a customer is paying in 10 days then the payment will be after a discount of 1% on the total value but if the customer is paying in 30 days then the payment will be made in full which means no discount.

To calculate:

The journal entry for the recording of sale revenue.

Explanation

The service contract has a price of $45,000 and the payment is to be received in 10 days and the discount for the early payment is 1%. This is given in the question.

Journal entry for recording sales revenue:

Date Particulars Debit Credit
To determine

(b)

Sales discounts:

The term 1/10,n/30 means that if a customer is paying in 10 days then the payment will be after a discount of 1% on the total value but if the customer is paying in 30 days then the payment will be made in full which means no discount.

To calculate:

The journal entry for the receiving payment within 10 days.

To determine

(c)

Sales discounts:

The term 1/10,n/30 means that if a customer is paying in 10 days then the payment will be after a discount of 1% on the total value but if the customer is paying in 30 days then the payment will be made in full which means no discount.

To calculate:

The journal entry for receiving payment after 10 days.

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