F3M2

Question 1

Gross method for accounting for AR discounts

Answer 1

records a sale and does not regard the available discount. If a discount is taken, then a sales discount account (contra-revenue account) is debited to reflect the sales discount.

Question 2

Net method for accounting for AR discounts

Answer 2

records sales and AR net of the available discount. If the payment is received after the discount period and no discount is awarded, a sales discount not taken account (revenue) must be credited.

Question 3

Trade discounts

Answer 3

(quantity discounts) are quoted in percentages. Sales revenues and AR are recorded net of trade discounts. The discounts are applied sequentially.

Example: $100 coat has two discounts available (40% and 10%). $100 – 40% discounts = $60, $60 – 10% discount = $54.