Jan. 12 Accounts Receivable—Omega Technologies 1,500
Sales 1,500
12 Cost of Merchandise Sold 850
Merchandise Inventory 850
22 Cash 1,470
Sales Discounts 30
Accounts Receivable—Omega Technologies 1,500Chapter 5 Accounting for Merchandise Operations 223Sales Discounts
Thecredit termsof a sale on account are normally indicated on the invoiceor bill that
the seller sends to the customer. If payment is required on delivery, the terms are cashor
net cash. Otherwise, the buyer is allowed an amount of time, known as the
credit period, in which to pay. The credit period usually begins with the
date of the sale as shown on the invoice. If payment is due within a
stated number of days after the date of the invoice, such as 30 days, the
terms are net 30 days. These terms may be written as n/30. If payment is
due by the end of the month in which the sale was made, the terms are
written as n/eom.
As a means of encouraging the buyer to pay before the end of the
credit period, the seller may offer a discount, called a sales discount. For
example, a seller may offer a 2% discount if the buyer pays within 10
days of the invoice date. If the buyer does not take the discount, the total
amount is due within 30 days. These terms are expressed as 2/10, n/30
and are read as 2% discount if paid within 10 days, net amount due within
30 days.
Sales discounts reduce sales and, therefore, the sales account could
be debited. However, managers may want to know the amount of the
sales discounts for a period in deciding whether to change credit terms. For this rea-
son, the seller records the sales discounts in a separate account. The sales discounts
account is a contra(oroffsetting) account to Sales.
To illustrate, assume that Online Solutions receives cash within the discount period
from a $1,500 credit sale to Omega Technologies. The sale of merchandise costing $850
was made on January 12, with the terms 2/10, n/30. The initial sale and the receipt of
the cash are recorded as follows:SCF BS IS
—AcSEc Rc—ATSET EcOc AcTSET Ec
Jan. 31 Accounts Receivable—American Express 100,000
Sales 100,000
31 Cost of Merchandise Sold 68,000
Merchandise Inventory 68,000
Feb. 15 Cash 96,000
Credit Card Expense 4,000
Accounts Receivable—American Express 100,000© PHOTODISC COLLECTION/GETTY IMAGESSCF BS IS
—AcSEc Rc—ATSET EcOc AcTSET RT
Sales Returns and Allowances
Merchandise that has been sold may be returned to the seller (sales return). In addition,
because of defects or for other reasons, the seller may reduce the initial price at which
the goods were sold (sales allowance). If the return or allowance is for a sale on account,