Question

ECG Company recorded two sales on March 1 of $20,000 and $30,000 under credit terms of 3/10, n/30 (3% discount if paid within 10 days, entire balance due in 30 days). Payment for the $20,000 sale was received on March 8. Payment for the $30,000 sale was received on March 25. At what amounts are ECGs gross sales reported for the month of March under the gross method and the net method

Answer 1

Answer:

In net method the discount not given is recorded as revenue and in gross method the discount allowed is recorded as expense.

Explanation:

ECG Company

Journal Entries

Net  Method

Date               Particulars                         Debit             Credit

1 March        Accounts Receivable       19400

                     Accounts Receivable     29,100

                              Sales                                              48500

( Calculation of net Sales ( 20,000* 3% = 600, 30,000* 3%= 900) 20,000- 600= 19,400 and 30,000- 900= 29,100)

8 Mar             Cash                         19400

                          Accounts Receivable                      19400

Receipt of 20,000 Sales within discount period.

25 Mar          Cash                        30,000

                      Accounts Receivable                          29,100

                    Interest Revenue                                        900

Receipt of payment after discount time period.

Gross Method

1 March        Accounts Receivable       20,000 Dr

                     Accounts Receivable      30,000 Dr

                              Sales                                              50,000 Cr

Transactions of Sales on gross method. Here discount is not calculated unless given.

8 Mar             Cash                         19400 Dr

                      Discount Allowed       600 Dr

                          Accounts Receivable                      20,000 Cr

Receipt of 20,000 Sales within discount period.

25 Mar          Cash                        30,000 Cr

                      Accounts Receivable                          30,000 Cr

           Receipt of Sales of 30,000 after the discount period.