Question

how a cash discount affects the income statement with the gross method and the net method. That is, where does the sales discount or the sales discount forfeited appear?

Answer 1

Cash Discount is Gross method :
According to gross method the company would initially record the sale at gross or full price. Journal entry would be:
Account Receivable A/c      Dr
      To Sales

And if customer pays the amount within specified time then entry will be:
Cash A/c                   Dr
Sales Discount A/c     Dr.
      To Account Receivable A/c

Cash Discount in Net Sales:
According to the net method the company would initially record the sale at net price:
Account Receivable A/c     Dr (net of discount)
          To Sales A/c

When customer pays within time allowed then entry would be:
Cash A/c             Dr
       To Account Receivable

And If customer paid after the time allowed then:
Cash A/c            Dr
      To Account Receivable
      To Sales discount forfeited

In the Income Statement sales are always shown net i.e Gross Sales Less sales discount.