Chapter 5, Problem 63E

To determine

(a)

Sales discounts:

The term

$1/15,n/30$ means that if a customer is paying in $15$ days then the payment will be after a discount of $1\%$ on the total value but if the customer is paying in $30$ days then the payment will be made in full which means no discount.

Sale revenue recognition and the collection from the sales revenue are two different things because the sale revenue includes outstanding sales whereas the collection from the sales excludes advancement payments.

To compute:

The calculation of sales revenue for $2019$.

Answer to Problem 63E

The sales revenue for the year $2019$ is $\$6,87,500$.

Explanation of Solution

The Citron Mechanical Systems sold on credit for $\$6,87,500$ and offered the discount for the payment i.e. if it is received in $10$ days and the discount for the early payment is $5\%$. It is estimated that due to this scheme, the payment of about $\$4,82,000$ will be realized in the discount period and remaining $\$2,05,500$ after discount period. This is given in the question.

The sales revenue for the year $2019$ will be recognized in full as the sale is made and the revenue will be recognized on accrual basis.

Thus, the revenue for the Citron Mechanical Systems is $\$6,87,500$.

To determine

(b)

Sales discounts:

The term $1/15,n/30$ means that if a customer is paying in $15$ days then the payment will be after a discount of $1\%$ on the total value but if the customer is paying in $30$ days then the payment will be made in full which means no discount.

Sale revenue recognition and the collection from the sales revenue are two different things because the sale revenue includes outstanding sales whereas the collection from the sales excludes advancement payments.

To calculate:

The amount of cash collected from these sales.

Answer to Problem 63E

The amount of cash collected from these sales is $\$6,82,680$.

Explanation of Solution

The Citron Mechanical Systems sold on credit for $\$6,87,500$ and offered the discount for the payment i.e. if it is received in $10$ days and the discount for the early payment is $5\%$. It is estimated that due to this scheme, the payment of about $\$4,82,000$ will be realized in the discount period and remaining $\$2,05,500$ after discount period. This is given in the question.

Sale Revenue within discount period	$\$4,82,000$
Less: Discount @ 1%	$\left(\$4,820\right)$
Collection	$\$4,77,180$
Collection from sales after discount	$\$2,05,500$
Collection from Sales	$\$6,82,680$

To determine

(c)

Sales discounts:

The term $1/15,n/30$ means that if a customer is paying in $15$ days then the payment will be after a discount of $1\%$ on the total value but if the customer is paying in $30$ days then the payment will be made in full which means no discount.

Sale revenue recognition and the collection from the sales revenue are two different things because the sale revenue includes outstanding sales whereas the collection from the sales excludes advancement payments.

The journal entries for recording sales and cash collected as per net method.

Answer to Problem 63E

The entry for recoding the entry of sales and cash collection is made properly.

Explanation of Solution

The Citron Mechanical Systems sold on credit for $\$6,87,500$ and offered the discount for the payment i.e. if it is received in $10$ days and the discount for the early payment is $5\%$. It is estimated that due to this scheme, the payment of about $\$4,82,000$ will be realized in the discount period and remaining $\$2,05,500$ after discount period. This is given in the question.

Date	Particulars	Debit	Credit
	Accounts Receivable	$\$6,87,500$
	Sale Revenue		$\$6,87,500$
	(Sale on Credit with terms $1/15,n/30$ )
	Cash	$6,82,680
	Sales Discount $\left(\$4,82,000\times 1\%\right)$	$\left(\$4,820\right)$
	Accounts Receivable		$\$6,87,500$
	(Cash collected from accounts receivable)