Question

Maxie's Game World sold games to a customer on credit for $3,800, terms 2/10, n/30 and the cost of the games was $2,900. When recording the collection from the customer made within the discount period, in its cash receipts journal, Maxie’s would enter:

Answer 1

Maxie's Game World would enter a debit to Cash for $3,724, a debit to Sales Discounts for $76, and a credit to Accounts Receivable for $3,800 in the cash receipts journal when the customer pays within the discount period.

Step-by-step explanation:

The question relates to recording the collection of an accounts receivable transaction with a sales discount within a cash receipts journal in accounting. Maxie's Game World sold games to a customer on credit for $3,800 with terms 2/10, n/30. This implies that the customer receives a 2% discount if the invoice is paid within 10 days, otherwise, the net amount is due within 30 days.

The cost of the games sold was $2,900, but this cost is not relevant for recording the cash receipt; it affects inventory and cost of goods sold. When the customer pays within the discount period, Maxie's Game World will record the cash received and the sales discount. The discount on a $3,800 sale is $76 (2% of $3,800), therefore, the cash receipt is $3,724 ($3,800 - $76).

In the cash receipts journal, Maxie's would enter a debit to Cash for $3,724, a debit to Sales Discounts for $76, and a credit to Accounts Receivable for $3,800.

Answer 2

Maxie's Game World would record the collection from the customer within the discount period in its cash receipts journal by debiting Accounts Receivable for $3,800, crediting Sales Discounts for $76 (2% of $3,800), and crediting Cash for $3,724.

Step-by-step explanation:

When Maxie's Game World sells games on credit with terms 2/10, n/30, it means that the customer can take a 2% discount if the payment is made within 10 days; otherwise, the net amount is due in 30 days. In this scenario, the customer made the payment within the discount period.

The entry in the cash receipts journal would involve debiting Accounts Receivable for the full invoice amount ($3,800), reflecting the amount owed by the customer. Next, Sales Discounts, a contra-revenue account, is credited with the discount amount ($76), which is 2% of $3,800. Finally, Cash is credited for the actual cash received, which is the net amount after the discount ($3,800 - $76 = $3,724).

This accounting entry accurately reflects the reduction in revenue due to the discount given to the customer and ensures that the financial records are updated in accordance with the sales terms. It also aligns with the principle of recognizing revenue at the net realizable value, considering the discount offered for early payment.