The gross method requires a period-end adjusting entry to estimate future sales discounts.

Question

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The gross method of accounting for sales discounts requires a period-end adjusting entry to estimate future sales discounts. This is necessary because the actual amount of discounts given to customers may not be known until they are redeemed, which could be after the end of the accounting period. Therefore, an estimate of the future discounts must be made in order to properly report net sales and accounts receivable on the period-end financial statements.

The Gross Method Requires a Period-End Adjusting Entry to Estimate