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Sales Discounts
Sales discounts are discounts given to customers when they pay all or part of their outstanding balance within the company's discount period.
Credit Terms
- Net: Tells the buyer how long they have to pay for their purchase.
- Discount percentage and discount period
Sales Discount
- Recorded only if discount is given
- Entered into the contra-revenue account titled Sales Discounts
- Does not reduce Sales revenue
- Partial discounts are possible
- If buyer only pays a portion of balance, that portion is given the discount.
Wize Tip
Sales discounts are recorded the same way under both the perpetual inventory system and the periodic inventory syste.
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Example: Sales Discounts
Prepare all necessary journal entries related to the events on May 24 and June 4th:
XYZ Corp. sold 50 units to Customer X on account at a price of $80 per unit on May 14. The inventory was valued at $30 per unit in the company's books. The terms of the sale were 3/15, n/60.
On May 24th, Customer X paid half her balance
On June 4th, Customer X paid her remaining balance.
Practice: Sales Discounts (Perpetual)
Wize Merchandisers Inc. has just hired you to be their new bookkeeper and your first task is to prepare journal entries for all the following events that took place in April 2020. The company uses the perpetual inventory system.
Apr. 1: Sold merchandise to a Twilight Ltd. for $2,000 on account. The cost of the merchandise was $750. The terms of the sale are 1/10, n/30 and FOB destination. The merchandise was shipped the following day at a cost of $60 and was delivered on April 5th.
Apr. 7: Twilight Ltd. returned 25% of the goods purchased on April 1st.
Apr. 8: Sold 90 units of merchandise for $25 per unit to Omega Corp. The merchandise had cost Wize $10 per unit. The terms of the sale are 1/15, n/45, FOB shipping point. The goods were shipped on April 10th at a cost of $140.
Apr. 9: Twilight Ltd. paid their balance in full.
Apr. 14: Omega Corp. paid $2,000 for a purchase made in March.
Apr. 15: Omega Corp. paid $500 towards their balance owing from the purchase made April 8th.
Apr. 21: Twilight Ltd. returned 10% of the goods purchased on April 1st.
Apr 29: Omega Corp. paid their remaining balance.
Prepare the journal entry to record the transaction on April 9th.
Transactions:
| Account | Debit | Credit |
|---|---|---|