Question

(Chapter Supplement) Under the gross method of recording sales discounts discussed in this chapter, is the amount of sales discount taken recorded
(b) At the time the collection of the account is recorded?

Answer 1

At the time of collection, if the amount is paid within the discount period, the following entry is recorded:

Cash (+A).......................xxx

Sales discount(+XR,-R,-SE)........xxx

R. Jones (Accounts Receivables)(-A)….xxx

If the account is paid in full before the end of the discount period, the customer can be eligible for a cash discount rate. The duration of the trade credit is known as the credit period, and up until the end of the credit term, no interest is applied to the outstanding balance.

You use it to illustrate how a company's cash flow is distributed equally throughout the year rather than arriving in full at the end. We would use discount period numbers of 1 for the first year, 2 for the second year, 3 for the third year, and so on in a DCF without the mid-year convention.

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