. A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to...

Question

. A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 2% cash discount for early payment.

What could Sales of $550,000 and net sales of $523,000 reflect? (Not looking just for a $ amount here but also why is there a difference, what does the difference mean.)

Uroosa · Accepted Answer

Solution:
Step 1 - Calculation
	Particulars
	Amount
	Working
	Gross Sales
	$550000
	
	Net Sales
	$523000
	
	Cash Discount
	$27000
	($550000-$523000
	Cash Discount %
	5%
	($27000/$550000*100)
Step 2 – Explanation
In the question there are two terminologies used – Sales and Net Sales. 
Sales refer to the Gross/ Total Sales. Sales of $550000 reflects these are gross sales which are unadjusted which means they are before charging any allowances, discounts and returns.
Gross Sales are the reflection of the total amount of revenue generated during a given period. This does not show the final revenue generated by the company.

. A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 2% cash discount for early payment. ...

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