Central Company sold goods for $5,000 to Western Company on March 12 on credit. Terms of the sale were 2/10, n/30. At the time of the sale, Central recorded the transaction by debiting trade receivables for $5,000 and crediting sales revenue for $5,000. Western paid the balance due, less the discount, on March 21. To record the March 21 transaction, Central would debit which of the following?

Question

Quizplus · Accepted Answer

The terms of the sale indicate that Western Company could take a 2% discount if they paid within 10 days (2/10) or pay the full amount within 30 days (n/30).

Since Western Company paid on March 21, which is 9 days after the sale, they are eligible for the discount. The discount amount would be 2% of $5,000, or $100. Therefore, Western Company would only need to pay $4,900 ($5,000 - $100) to Central Company.

To record the payment, Central Company would debit cash for the amount received, which is $4,900, and credit trade receivables for the full amount of $5,000 since the payment has been received in full.

Therefore, the correct answer is C, cash for $4,900.

Central Company Sold Goods for $5,000 to Western Company on March