Question

A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom, FOB shipping point with prepaid freight of $900 added to the invoice. Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?

Answer 1

Answer:

$12,285

Explanation:

Term 1/10, means if the buyer pays the seller within 10 days, the buyer will receive 1% sales discount. However, n/eom means the payment must be paid within a certain number of days of the month according to the agreement.

Accounting explanation:

Here, Merchandise price = $12,000

Sales return = $500

Total Sales = $11,500

Since the invoice is paid within the discount period, and the discount is 1%

Sales Discount = $11,500 x 0.01 = $115

Net Sales = $(11,500 - 115) = $11,385

FOB shipping point means buyer has to pay the freight cost. Therefore,

Total amount of cash to be paid by the customer (or, to be received by the seller) = $11,385 + $900 = $12,285