Carter Company sells merchandise on account for $4,000 to Hannah Company with credit terms of 2/10, n/30.Hannah Company returns $600 of merchandise that was damaged along with a check to settle the account within the discount period.What entry does Carter Company make upon receipt of the check?

Question

Quizplus · Accepted Answer

Carter Company should make the following entry upon receipt of the check:

Debit: Cash $3,896 ([$4,000 - $600] x 0.98)
Credit: Accounts Receivable $4,000
Credit: Sales Discounts $104 ([$4,000 - $600] x 0.02)

This entry reflects the fact that Hannah Company paid $3,896 ($4,000 - $600) within the discount period, which entitles them to a 2% discount ($104). The remaining amount of $3,896 ($3,996 - $104) is recorded as cash.

Carter Company Sells Merchandise on Account for $4,000 to Hannah