A company sold merchandise for $1,000 on account with terms of 2/10, n/30. The company uses a perpetual inventory system. Defective merchandise of $200 was returned 2 days later. If the payment was received after 20 days, the journal entry to record the cash receipt will include:
A)a debit to Cash for $980 and a credit to Accounts Receivable for $980.
B)a debit to Cash for $800 and a credit to Accounts Receivable for $800.
C)a credit to Sales for $800 and a debit to Cash for $ 800.
D)a credit to Cost of Goods Sold for $1000 and a debit to Sales for $1,000.

Question

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The customer is eligible for a 2% discount (2/10) if payment is made within 10 days. However, the payment was received after 20 days, so the customer did not receive the discount. The original sale was $1,000, but the customer returned $200 of defective merchandise. This means the net sale was $800 ($1,000 - $200). Therefore, the amount received from the customer is $800, and the journal entry to record the cash receipt is:
Debit Cash $800
Credit Accounts Receivable $800
Option A is incorrect because it does not account for the $200 credit for the returned merchandise.
Option C is incorrect because it implies that the customer received a discount, which is not the case since payment was received after the discount period.
Option D is incorrect because it does not account for the returned merchandise or the cash receipt.

A Company Sold Merchandise for $1,000 on Account with Terms