Answer:
A liquidated damages clause
Explanation:
A liquidated damages clause or provision is included in an agreement specifying an amount of money that establishes the damages that will be recovered by one party in the event of another party's breach to the contract.
Liquidated damages are agreed upon by parties to the contract at the time of signing the agreement.
In this scenario, the provision of $1,000 in the agreement constitutes a liquidated damages clause.
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Cost of goods sold entries will be omitted.
Debit Credit
July 1
Accounts Receivable 23,000
Sales 23,000
July 8
Sales Returns 2,400
Account Receivable 2,400
July 11 (within 10 days from date of purchase, so discount is availed)
23,000 - 2,400 = 20,600
20,600 x 2% = 412
20,600 - 412 = 20,188
Cash 20,188
Sales Discount 412
Accounts Receviable 20,600
