Harvey's Wholesale Company sold supplies of $46,000 to a company on April 12 of the current year, with terms 1/15, n/60. Harvey uses the net method of accounting for sales discounts.
What entry would Harvey's make on April 23, assuming the customer made the correct payment on that date?
Option 1:
Account Title | Debit | Credit
Cash | 45,540 |
Sales | 460 |
Accounts receivable | | 46,000
Option 2:
Account Title | Debit | Credit
Cash | 46,000 |
Sales discounts | 460 |
Accounts receivable | | 46,000
Sales discounts forfeited | | 460
Option 3:
Account Title | Debit | Credit
Cash | 45,540 |
Sales discounts | 460 |
Accounts receivable | | 46,000
Option 4:
Account Title | Debit | Credit
Cash | 45,540 |
Accounts receivable | | 45,540
Answer (1)
To determine the correct entry Harvey's Wholesale Company should make on April 23, let's break down the information:
Sales and Terms: Harvey's sold supplies worth $46,000 with terms 1/15, n/60. This means a 1% discount is available if payment is made within 15 days; otherwise, the net amount is due in 60 days.
Payment Timing: The payment was made on April 23, which falls within the 15-day discount period from April 12 (date of sale). Therefore, the customer is entitled to a 1% discount.
Discount Calculation: Discount = 46 , 000 × 0.01 = 460
Net Payment Amount: Net Amount Paid = 46 , 000 − 460 = 45 , 540
Since Harvey's uses the net method, they would have initially recorded the accounts receivable at the net of the invoice price, which is $45,540.
The entry to record this transaction on April 23 (when the customer makes the correct payment) would be:
Option 4: Account Title | Debit | Credit
Cash | 45,540
Accounts receivable | | 45,540
The account receivable is credited with the net amount ($45,540), and cash is debited for the same because this reflects the actual cash received.
Therefore, the correct multiple-choice option is Option 4 .
