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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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When should the net method be used to record sales revenue?

a. Never-the gross method should always be used.

b. When the discount terms are favorable to the customer.

c. When the customer does not pay within the discount period.

d. When the customer is expected to pay within the discount period.

To determine

Gross method:

Under this method, the revenues are recorded at gross amount of sales i.e. without taking the effect of any discount at the time of sales.

Net method:

Under this method, the revenues are recorded at net amount i.e. amount received after considering the discounts on the selling price. This discount is provided with a limited time period to avail such discounts.

To select:

The best time for recording the sales revenue in net method.

Explanation

The net method foe recording the sales is when the customers avails the discount and pay the net amount of sales.

The gross method should be used as the customers are not availing the discounts and the amount is paid without the discounts which is the gross amount. Hence, option (a) is correct.

The net method cannot be used in this as the net method is used when discounts are availed and not when the discounts are favourable to the customers...

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