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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

Ramsden Inc. provided consulting services with a gross price of $25,000 and terms of 2/10, n/30.

Required:

1. Prepare the necessary journal entries to record the sale under the gross method.

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 2/10,n/30 means that if a customer is paying in 10 days then the payment will be after a discount of 2% 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.

Gross method:

Gross sales method records entire sale revenue for recording accounts receivable with the recording of discount on payment differently as part of the trade practice.

To calculate:

The journal entry for the recording of sale revenue.

Explanation

The service contract has a price of $25,000 and the payment is to be received in 10 days and the discount for the early payment is 2%. This is given in the question.

Journal entry for recording sales revenue:

Date Particulars Debit Credit
To determine

(b)

Sales discounts:

The term 2/10,n/30 means that if a customer is paying in 10 days then the payment will be after a discount of 2% 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.

Gross method:

Gross sales method records entire sale revenue for recording accounts receivable with the recording of discount on payment differently as part of the trade practice.

To calculate:

The journal entry for the receiving payment within 10 days.

To determine

(c)

Sales discounts:

The term 2/10,n/30 means that if a customer is paying in 10 days then the payment will be after a discount of 2% 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.

Gross method:

Gross sales method records entire sale revenue for recording accounts receivable with the recording of discount on payment differently as part of the trade practice.

To calculate:

The journal entry for receiving payment after 10 days.

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