Redwing Company sold inventory costing $500 to a customer on account for $700. Which of the following correctly describes the collection of $686 cash when the customer takes advantage of a sales discount?

Question

Quizplus · Accepted Answer

When the customer takes advantage of the sales discount, they are paying $686 instead of the original amount of $700. This means that the accounts receivable balance will decrease by $700 - $686 = $14. Since the company is not making any additional sales, operating expenses should not be affected, gross profit remains the same, and there is an increase in cash of $686. Therefore, the correct choice is C, as the current assets decrease by the amount of the accounts receivable decrease, which is $14.

Redwing Company Sold Inventory Costing $500 to a Customer on Account