Trade discounts - reductions to the grossselling price for a particular class ofcustomers to arrive at the actual selling price(invoiceprice)Trade discountsare generally price concessionsorpurchaseincentivesThe gross sales revenue recognized from atrade discount is the price received afterdeductingthe discount
Trade discounts - reductions to the gross selling price for a particular class of customers to arrive at the actual selling price (invoice price) •Trade discounts are generally price concessions or purchase incentives. The gross sales revenue recognized from a trade discount is the price received after deducting the discount
Cash discounts - reductions of invoiceprices awarded for prompt payment of theinvoice Encourage prompt payment and reducemanufacturer's or seller's need for cash- Reduces the risk of bad debts (nonpaymentPurchasers should always take purchasediscounts ifpossible
Cash discounts - reductions of invoice prices awarded for prompt payment of the invoice – Encourage prompt payment and reduce manufacturer’s or seller’s need for cash – Reduces the risk of bad debts (nonpayment) Purchasers should always take purchase discounts if possible
Cashanddiscountsandsalesreturnsfromallowancesrecorded as deductionsaregross sales$20,000Gross salesDeduct:$200Sales returns and allowances550Cashdiscountsonsales750$19.250Net sales
Cash discounts and sales returns and allowances are recorded as deductions from gross sales. Gross sales $20,000 Deduct: Sales returns and allowances $200 Cash discounts on sales 550 750 Net sales $19,250
The income statement allows differentsystems for accounting for net sales- The preceding example shows sales, salesreturns and allowances, and cash discounts inseparateaccountsNet sales can be shown in one account whereall sales returns and allowances and cashdiscounts directly decrease the sales account
The income statement allows different systems for accounting for net sales. – The preceding example shows sales, sales returns and allowances, and cash discounts in separate accounts. – Net sales can be shown in one account where all sales returns and allowances and cash discounts directly decrease the sales account
Cash and AccountsReceivableCashAccountsReceivable
Cash and Accounts Receivable Cash Accounts Receivable