on statement for profit and loss . based on formula why sales have to less with...

on statement for profit and loss . based on formula why sales have to less with discount ? discount is under expenses right ?

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Expert Solution

A sales discount is a reduction in the price of a product or service that is offered by the seller, in exchange for early payment by the buyer. A sales discount may be offered when the seller is short of cash, or if it wants to reduce the recorded amount of its receivables outstanding for other reasons.

If a customer takes advantage of these terms and pays less than the full amount of an invoice, the seller records the discount as a debit to the sales discounts account and a credit to the accounts receivable account. The sales discounts account appears in the income statement and is a contra revenue account, which means that it offsets gross sales, resulting in a smaller net sales figure. The presentation of a sales discount in the income statement is:

Gross sales	$xxx,xxx
Less: sales discounts	(xxx,xxx)
Net sales	$xxx,xxx

Sales discounts are also known as cash discounts or early payment discounts. Sales discounts (along with sales returns and allowances) are deducted from gross sales to arrive at the company's net sales. Hence, the general ledger account Sales Discounts is a contra revenue account. Sales discounts are not reported as an expense

ekkarill92 answered 1 year ago

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