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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Briefly explain how to record accounts receivable when cash discounts are involved.

To determine

State the manner in which the accounts are recorded, if cash discounts are involved.

Explanation

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Methods used to record the accounts, if cash discounts are involved are as follows:

  • Gross price method, is the primary method of recording accounts receivable, if cash discounts are involved. In this method, amount of accounts receivable and sales are stated at the gross price. While using this method, both the accounts of accounts receivable and sales are recorded at the total invoice price, if there is no discount of cash is involved.
  • The company records the difference amount of cash received and original amount of accounts receivable as a debit to sales revenue...

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