Question

May     8- Sold merchandise on account to Rustans, P11,000, VAT included. Terms: 2/10,

                        n/30.

8 May 2002	Accounts Receivable					11,000
		Sales					10,000
		Output Tax					1,000
	(Sales made on credit to Rustans)

18- Received a check from Rustans for the amount owed on the May 8 sale.

18	Cash					8624
	Sales Discount					160
	Output Tax					16
		Accounts Receivable					8800
	(Payment collected on May 8 within 10 days)

my question is about the transaction 18.. is it the right journal entries??

Answer 1

Transaction 18^th

No; the journal is wrong

Accounts receivable = 11,000

Output tax would be unaffected here, since the total sale doesn’t change.

This is a cash discount but not sales discount.

Cash discount is there because the payment is made within 10 days.

2/10, n/30 meaning: if paid within 10 days 2% discount is there, otherwise the whole 11,000 is due to be paid in 30 days.

Cash discount = Accounts receivable × 2%

                        = 11,000 × 2%

                        = 220

Journal

Date	Account titles and explanation	Ref.	Debit	Credit
18th May	Cash		10,780
	Cash discount		220
	Accounts receivable			11,000
	To record the collection of payment at 2% discount.