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.
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.
