Sales Discount

Terms - "2/10, n/30" - Maybe be offered

2/10  mean 2% discount will be given if the obligation is paid within 10 days of the invoice date, on the entire amount.

n/30 = mean that the entire obligation, Net (n), is due the seller with in 30 days of the invoice.

The sales discount is offered but the seller, but it is the buyer who exercises the option of taking the cash discount or not.

Example:

January 2, 2013, Gary Company sales on credit amounted to $5,150 of merchandise to Shehgarlynn Supermarket, terms 5/10, n/30.  On January 9, 2013, Gary's Co. received a cash from Shehgarlynn Supermarket in payment of the account last Jan. 2, 2013.
Computation:

Cost of Merchandise          $5,150.00
Discount                                      5%     
Sales Discount                         257.50

Journal Entries: Books of the Seller

January 2, 2013  Accounts Receivable        $5,150.00
                                      Sales                                                            $5,150.00
                                   To record sales on credit, amounted $5,150, terms offered 5/10, n/30


January 9, 2013  Cash                                $4,892.50
                                    Sales Discount                   257.50
                                       Accounts Receivable                    $5,150.00
                                  To record the payment of Shehgarlynn account.        
                                                                                                                                     

Purchases Discount

Terms - "2/10, n/30" - Maybe be offered

2/10  mean 2% discount will be given if the obligation is paid within 10 days of the invoice date, on the entire amount.

n/30 = mean that the entire obligation, Net (n), is due the seller with in 30 days of the invoice.

The sales discount is offered but the seller, but it is the buyer who exercises the option of taking the cash discount or not.

Example:

January 2, 2013, Shehgarlynn Supermarket bought $5,150 of merchandise to Gary Company on credit, terms 5/10, n/30.  On January 9, 2013, Shehgarlynn paid cash for the goods.

Computation:

Cost of Merchandise          $5,150.00
Discount                                      5%     
Purchases Discount                 257.50


Journal Entries: Books of the Buyer

January 2, 2013  Merchandise Purchases        $5,150.00
                                      Accounts Payable - Gary Co.                         $5,150.00
                                   To record purchases of merchandise, terms offered 5/10, n/30


January 9, 2013  Accounts Payable - Gary Co.   $5,150.00
                                       Cash                                                                        $4,892.50
                                       Purchases discount                                                 257.50
                                   To record the payment of merchandise.

Determining the Cost of Goods Available for Sale

Merchandise Inventory, Beg.                                                           $19,130
Purchases                                                                                  89,950
Less: Purchases Returns And Allowances    9,750
            Purchases Discount                                 11,300   21,050
Total                                                                                            68,900
Add: Freight on Purchases                                                    1,570
Net Purchases                                                                                           70,470
Cost of Goods Available for Sale                                89,600

Determining the Cost of Merchandise Sold

Cost of Merchandise Available for Sale ...................$89,600
Less: Merchandise Inventory, End ........................      13,750
Cost of Goods Sold .............................................        75,850

Determining Net Sales

Revenue

   Gross Sale ............................................................. $150,000
   Less: Sales Returns and Allowances ....... $5,155
              Sales Discount .......................             1,350               6,585
   Net Sales ...........................................................  ...$143,495

Determining Net Income

Net Sales - The results of subtracting sales returns and allowances and sales discounts from the sale account.

    Net Sales .......................................        $143,495
   Less: Cost of Goods Sold .............                 75,850
   Gross Profit ..................................             67,645
   Operating Expenses  .....................              45,750
   Net Income  ...................................         $21,895