5) Maxie\'s Game World sold games to a customer on credit for $2,600, terms 1/10

Question

5) Maxie's Game World sold games to a customer on credit for $2,600, terms 1/10, n/30 and the cost of the games was $1,700. When recording the collection from the customer made withi n the discount period, in its cash receipts jounal, Maxie's would enter: 5) A) S2,574 in the Cash Dr. column, $26 in the Sales Discount Dr. column and $2,600 in the Accounts Receivable Cr.column. B) $2,600 in the Cash Dr. column. $2,600 in the Sales Cr. column, and $1,700 in the Cost of Goods Sold Dr/Inventory Cr.column. C) $2,600 in the Cash Dr. column and $2,600 in the Accounts Receivable Cr.column. D) $2,600 in the Accounts Receivable Dr/Sales Cr. column and $2,600 in the Cash Cr. column E) $2,574 in the Cash Dr. column and $2,574 in the Accounts Receivable Cr.column.

Explanation / Answer

Answer:

Option E is Correct.

Sales = $2,600
Discount Term is 1/10, Net 30 i.e. 1% discount will be allowed to Accounts Receivable who will make the payment within a period of 10 days of Sale. The Discount will be recorded in General Journal and the Cash receipt on the date of collection will be recorded in Cash receipts.

Discount allowed = $2,600 * 1% = $26
Cash collection = $2,600 - $26 = $2,574

The Cash Collection of $2,574 will be recorded in cash Receipts Journal by Debiting Cash and Crediting Accounts Receivable by $2,574. The Cost of goods sold doesn’t effect the Cash Receipts.

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