Net Sales:Sales Discounts (Net Method)

Brian Krogol
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Alright, so the difference with the net method is that we're going to assume that the customer is going to pay us quickly to get the discount. Okay, so this is the assumption that they're definitely going to take the discount and then when we received the cash will adjust for that, did we actually get the discount? Did they? Excuse me? Did the customer actually take the discount or not? Okay. So when we do the sales entry, when we take our revenue in the first place? Right. The problem told us we we sold 100 units for $2,000. Well we're not gonna take revenue for 2000 right away, we're gonna net it to the amount of the sales discount. So we're gonna do an accounts receivable because we're owed money and we are gonna credit revenue just like before. Okay so our entry is gonna look very similar except instead of taking the full 2000, we're gonna take the net amount, we're gonna do the cash amount this 1940 here. Right. So what we're assuming is that the customer is gonna get this 3% discount And if we do the 2000 times 3% like we did before we see that the discount would be $60 here. So instead of receiving 2000 we're expecting to receive 1940. Okay so that's the amount we're gonna put in our revenue entry. So we're gonna say we're expecting to receive 1940 in in accounts receivable and we've earned revenue of 1940. Okay so now we have an account receivable notice at the discounted price. So now when the time comes to receive the money, this is when we would see a difference. Okay. In this case, well they did take the discount so we're fine. All we need to do is we're gonna say since they paid us on time, right, they paid us within the 10 day window that they had to receive the discount. Well, we're going to debit or cash, They're gonna pay us 1940 in this case. Right? Because that's the amount of cash we received and we're going to credit our A. R. For 1940. Notice how easy the net method is when everything works out right? If if we're expecting the customer to take the discount and the customer does take the discount. Well then there we go. We were set. We already have all the entries and we're pretty easy, pretty easy to do it. We just have to first calculate the net amount of revenue we would get when they take the discount. Okay, So the big trick there is to just figure out how much discount is and find the net amount of revenue. Alright, In the next example when we do the net method, we'll see a different situation where the discount is not taken. All right, So let's check out that example to