A company sells merchandise on November 2 at a $4,000 invoice price with terms of 2/10, n/30. The goods cost $2,000. The company

Answer:

• Upon payment in cash.

Cash   $4,000  Debit  

Accounts Receivable  $4,000  Credit  

Explanation:

In the net method for recording invoices, a company logs invoices at their net value, which is the invoice's total amount minus any applicable discounts.    

When the sale occurs, the company records the invoice amount after discounts, assuming all clients will pay promptly to benefit from the discounts provided.    

• The initial entry into the accounting records is:    

Accounts Receivable  $3,920  Debit  

Sales Revenue        $3,920  Credit  

Cost of Goods    

Cost of Goods Sold  $2,000  Debit  

Inventory                $2,000  Credit  

The terms are 2/10, n/30, indicating that if payment is made within 10 days of the invoice date, the discount applies.    

• Since the invoice was created on November 2 and payment occurred on November 30, the entry is as follows:    

Accounts Receivable      $80  Debit  

Sales Discount Forfeited  $80  Credit  

Upon payment in cash.    

Cash                               $4,000  Debit  

Accounts Receivable     $4,000  Credit