24. A company uses the gross method to record sales of inventory on 1/8 for $1,000 with payment terms 2/10, net 30. The customer paid for the purchase on 1/17. How is the discount recorded in the journal entry posted on 1/17?
Answer: A
The discount is debited for $20.
When the customer pays within the discount period, the journal entry reflects the discount taken. In this case, the discount of 2% on the $1,000 sale amounts to $20, which is debited to the discount account.
A) Debited for $20
This option is correct because the discount is calculated as 2% of the sale price, which equals $20. Since the company uses the gross method, the discount taken reduces the sales revenue, hence it is recorded as a debit in the journal entry on 1/17.
B) Debited for $980
This option is incorrect. While $980 represents the amount received after the discount, it is not how the discount is recorded in the journal entry. The debit for the cash received would be $980, but the discount itself must be recorded separately.
C) Credited for $980
This option is incorrect. The amount of $980 is not credited as the discount but rather reflects the cash received after applying the discount. Discounts are typically debited to represent a reduction in revenue, not credited.
D) Credited for $20
This option is incorrect because a credit to the discount account would imply an increase in revenue, which contradicts the purpose of recording a discount. Discounts reduce the sales revenue, hence they should be debited, not credited.
Conclusion
In summary, the correct entry for the discount is to debit $20, reflecting the reduction in sales revenue due to the discount taken by the customer. All other options misrepresent how the discount should be recorded, either by inaccurately attributing the discount amount or mislabeling the nature of the accounting entry.