A $50,000 sale transaction is made with terms of 2/10, net 30. Assuming that the customer takes the discount, what amount is booked to the "cash discount" account under the gross method of accounting for cash discounts?

Question

Quizplus · Accepted Answer

Under the gross method, the sale is initially recorded at its full amount. If the customer takes advantage of the discount, the difference between the full amount and the discounted amount is recorded as a "cash discount." Here, a 2% discount on $50,000 is $1,000, so the cash discount account would be debited by $1,000 to reflect the reduction in revenue due to the discount taken by the customer.

A $50,000 Sale Transaction Is Made with Terms of 2/10