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Net Sales:Sales Discount Forfeited (Gross Method)

Brian Krogol
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All right, So let's try this example. It's pretty much the same as the example above. Except I changed the payment date where we received the money from the customer. Let's check it out. Abc company sold 100 units of Product X. For $2000 on january 14th. Abc offered terms of 3 10 net 45. Right, What does that mean? That means a 3% discount if they pay us within 10 days and otherwise they have 45 days to pay us. Abc company received payment on february 1st, record the sale and receipt of cash in abc company's books. All right, so let's do the gross method first. Remember I said most books and most teachers are going to focus on the gross method and just double check if you need the net method, most of you will not even need the net method. Alright, so from the gross method, we are gonna take the gross amount of revenue on the sale date. So they didn't pay us in cash, right? They're gonna pay us later. So we're gonna take an account receivable, right? We're going to debit account receivable for 2000 and we're going to credit revenue. Excuse Me. For 2000. Okay, so pretty straightforward there and then we have to see if they're gonna earn the discount, right? It's january 14th. Well, they have 10 days to pay to earn the discount that would give them up to the 24th. Right? And they didn't pay until february 1st so they don't earn the discount. Right? They didn't get the discount. They paid us the full $2000 because they took longer than 10 days. So we're just gonna receive cash Of $2,000. We debit cash 2000 and we credit our accounts receivable for 2000 because we're no longer owed that money. So notice how simple it is when they don't take the discount, right? It's just we make our accounts receivable entry and then we receive cash. So let's see the same thing from the net method. Alright, let's pause here.