Question

The Sales Discounts Forfeited account ________. Select one: A. represents additional sales revenue B. is a contra Sales Revenue account C. is a balance sheet account D. represents the discount lost when a customer does not pay within the discount period

Answer 1

Answer:

D) represents the discount lost when a customer does not pay within the discount period

Explanation:

When a business uses the net method for accounting sales and purchases, they include all the possible discounts in the sales or purchases that they make. E.g. a store that sells $1,000 in merchandise and offers a 3% discount within 10 days (3/10, n/30) will record accounts receivable and sales revenue at $9,700 since it expects its customers to pay within the discount period.

Dr Accounts receivable 9,700

    Cr Sales revenue 9,700

But if the customers do not pay within the discount period, accounts receivables and sales revenue must be adjusted. The sales discounts forfeited account should be used to adjust both accounts by increasing sales revenue and at the same time debiting accounts receivable fro $300.

Dr Accounts receivable 300

    Cr Sales discounts forfeited 300