Question

Novak Corp. sells merchandise on account for $3500 to Morton Company with credit terms of 2/14, n/30. Morton Company returns $1000 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Novak Corp. make upon receipt of the check

Answer 1

Answer:

Sales Returns                 $1000 Dr

Cash                                $2450 Dr

Discount Allowed           $50 Dr

Accounts Receivables              3500 Cr

Explanation:

Out of the $3500 merchandise sold, $1000 is returned which will be recorded as Sales returns and as it is a contra account to Sales Revenue, it will be debited when increase. Against this return, Accounts receivables will be debited by the amount of return.

As the settlement is made within the discount period, the discount of 2% will be allowed on the outstanding amount after sales returns that is 3500 - 1000 = 2500

The discount will be 2500 * 2% = $50

The remaining will be received as Cash that is 2500 - 50 = $2450

Thus the acoounts receivables against this sale will be credited by this amount.