Answer: Cash 11,520 Sales Discount 480 Accounts Receivable 12,000
Explanation:
Fashion Jewellers sold goods for $14,000.
Out of this $14,000, damaged goods were returned which caused Fashion Jewellers to reduce the figure by $2,000 by way of a sales allowance.
The figure is now,
= 14,000 - 2,000
= $12,000
This $12,000 is subject to a trade term of 4/15, n30 which means that as long as the amount is paid in 15 days, a 4% discount is applicable. If the balance is not paid in 15 days however, it should be paid in 30 days.
Fashion house received the payment within the discount period so the good is liable to a 4% reduction.
= 12,000 * 4%
= $480
That means that only,
= 12,000 - 480
= $11,520 was paid as balance in cash
The proper entry on April 10 is therefore,
DR Cash $11,520
DR Sales Discount $480
CR Accounts Receivable $12,000
Sales discount is an expense and Expenses are debited when they increase.
The options do not have this answer but it is correct.
