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ABC Co sold goods with a list price of $3,700 to White which was subject to trade discount of 5% and early settlement discount of 4% if the invoice was paid within 7 days. The normal
credit period available to credit customers is 30 days from invoice date. At the point of sale,
White was not expected to pay early and take advantage of the early settlement terms
offered.
If, as expected, White did not pay within the settlement discount period, what accounting
entries should be made by ABC Co to record settlement of the amount outstanding?A Debit Cash $3,515, and Credit Trade receivables $3,515
B Debit Cash $3,515, Credit Discount received $140.60 and Credit Trade receivables
$3,374.40
C Debit Cash $3,374.40 and Credit Trade receivables $3,374.40
D Debit Cash $3,515, Debit Revenue $185 and Credit Trade receivables $3,700Sir , why answer is A ?
Can you please explain this question to me ?They did not expect White to pay within the 7 days and therefore the invoice would only have taken into account the trade discount of 5%. Therefore the income will have been for 95% x $3,700 = $3,515 and this amount will have been debited to receivables when the invoice was issued.
White will have paid 3,515 and therefore when the cash was received the entry will have been as per answer A.
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