On October 5, Hawthorne sold merchandise for $20,000 with terms 2/10, n/30. On October 14, the customer sent a check for $13,720 taking advantage of the discount to settle $14,000 of the amount. On November 4, the customer paid the remaining $6,000.

Net Method

Accounts receivable 19,600
Sales revenue 19,600

Cash 13,720
Accounts receivable 13,720

Cash 6,000
Accounts receivable 5,880 (19,600-13,720 = 5,880)
Interest revenue 120 (? )

How do I calculate the interest revenue?

Pam Johnson

Quote:

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Originally Posted by Pam Johnson

On October 5, Hawthorne sold merchandise for $20,000 with terms 2/10, n/30. On October 14, the customer sent a check for $13,720 taking advantage of the discount to settle $14,000 of the amount. On November 4, the customer paid the remaining $6,000.

Net Method

Accounts receivable 19,600
Sales revenue 19,600

Cash 13,720
Accounts receivable 13,720

Cash 6,000
Accounts receivable 5,880 (19,600-13,720 = 5,880)
Interest revenue 120 (??)

How do I calculate the interest revenue?

Pam Johnson

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Seems to me you have it a little backwards Pam

A/R Dr 20000 sales Cr 20000
A/R Cr 14000 Cash Dr 13720 settlement discounts Dr 280
A/R Cr 6000 Cash Dr 6000

There is no Interest Revenue since the customer settled the whole account within terms and you do not record the discounts before they are taken