Question

In: Accounting

A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

PG. 34

A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.


Solutions

Expert Solution

FALSE

Sales/Trade Discount - Sales discount is a discount given to the customer on account of sales and it is calculated on the price of the product in order to increase the sales.

Cash Discount - Cash discount is the discount given to customer on account of getting early payment.

The statement is FALSE due to following reasons:

1) 10% cash discount is not equals to $20. 10% cash discount will be on $1,000 for early payment and the cash discount value would be $100 ($1,000*10%)

2) Sales discount is different that Cash Discount

3) The Journal Entry is not correct in the statement

The correct entry should be

Debit Cash $980

Debit Cash Discount $20

Credit Accounts Receivable $1,000

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

ekkarill92 answered 1 year ago
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