Which one of the following statements regarding sales discounts is correct?
A) If a company offers a discount to encourage prompt payment and the discount is taken, the discount reduces the amount of net sales.
B) Credit terms of "2/10, n/30" mean that if payment is made in two days, a 10% discount may be taken; if not paid within two days, the full invoice price will be due in thirty days.
C) The terms "sales discounts" and "sales credits" are used interchangeably by a company.
D) The Sales Discounts account is an expense account.

Question

Quizplus · Accepted Answer

If a company offers a sales discount to encourage prompt payment and the discount is taken, the amount of the discount is deducted from the total amount of the sale. Therefore, the net sales amount is lower.

Option B is not entirely correct as the credit terms "2/10, n/30" means that if payment is made within ten days, a 2% discount may be taken. The full invoice price is due in thirty days irrespective of whether the discount is taken or not.
Option C is incorrect as "sales credits" typically refer to returns or allowances given to customers, whereas "sales discounts" refer to discounts offered for prompt payment.
Option D is incorrect as the Sales Discounts account is a contra revenue account used to track the discounts offered. It is not an expense account.

Which One of the Following Statements Regarding Sales Discounts Is