Question

Pharoah Company on July 15 sells merchandise on account to Sarasota Co. for $3100, terms 2/10, n/30. On July 20 Sarasota Co. returns merchandise worth $1600 to Pharoah Company. On July 24 payment is received from Sarasota Co. for the balance due. What is the amount of cash received

Answer 1

Answer:

July 24  Cash                      $1470 Dr

              Discount allowed  $30 Dr

                    Account Receivable     $1500 Cr

Explanation:

The receipt of payment for accounts due will cause a credit to accounts receivable for that particular debtor along with a debit to cash as payment is received. However, as there were some sales returns, the outstanding amount in the accounts receivble account was sales less sales returns that is 3100 - 1600 = 1500.

The terms state 2/10, n/30 which means 2% cash discount is allowed if payment is made within 10 days of sale. The payment is made within 10 days, as July 24 falls under this period so cash received will be 1500 * 98% = 1470.

While Accounts recevables will be reduced by 1500. The difference of 30 is discount allowed and it is an expense and will be debitted.