Question

On July 9, Sheb Company sells goods on credit to Wooley Company for $5,000, terms 1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is:
A.

Cash 5,000

Accounts Receivable 5,000

B.

Cash 4,950

Sales Discounts 50

Accounts Receivable 5,000

C.

Cash 5,000

Sales Discounts 50

Accounts Receivable 4,950

D.

Cash 5,050

Sales Discounts 50

Accounts Receivable 5,000

Answer 1

Answer:

B.

Cash 4,950

Sales Discounts 50

Accounts Receivable 5,000

Explanation:

Terms 1/10, n/60 means that if customer pay within 10 days he will be entitle to receive 1% cash discount. Otherwise credit period is 60 days. Wooley Company paid on the 10th day and they are eligible for the 1% discount.

Sheb Company will receive 4,950 ( $5,000 - $50 ) cash and will give a discount of $50 ( 1% x $5,000 ) and receivable will decrease by total amount of $5,000.

So, the entry will be as follow:

                                         Dr.        Cr.

Cash                             4,950

Sales Discounts                50

Accounts Receivable                 5,000