2. Gross vs Net method (To account for purchase / sales discounts)

Recording sale on account (gross method)

Debit Accounts receivable, Credit Sales revenue for total price merchandise sold at.

Receiving part of accounts receivable within the discount period (gross method)

Debit Cash for amount - discount, Debit Sales discounts for amount of discount, Credit Accounts Receivable for full amount.

Receiving accounts receivable after the discount period (gross method)

Debit Cash, Credit Accounts receivable for amount received.

Recording sale on account (net method)

Debit Accounts Receivable for amount assuming customer pays in full within discount period, Credit sales revenue for amount assuming customer pays in full within discount period.

Recording receipt of cash for part of accounts receivable (net method)

Debit Cash for amount received, Credit Accounts receivable for same amount.

Recording receipt of cash for the remaining balance on accounts receivable after discount period (net method)

Debit Cash for amount received, Credit Accounts receivable for amount after discount, Credit Sales discounts forfeited for amount of discount not claimed by the customer.

• For example if the customer pays $6,000 as the last payment that means they missed out on $6,000 x .02 = $120 discount (Sales discount forfeited).

Recording purchase of inventory (gross method)

Debit Inventory for cost, Credit Accounts payable for cost.

Recording paying off part of the accounts payable within discount period (gross method)

Debit Accounts payable for amount paid, Credit Inventory for amount of discount (amount paid x discount percentage), Credit Cash for actual amount of cash paid.

Recording payment of accounts payable outside of discount period (gross method)

Debit Accounts payable, Credit Cash for amount paid.

Recording purchase of inventory (net method)

Debit Inventory for amount after discount, Credit Accounts payable for amount after discount

Recording paying off part of accounts payable within discount period (net method)

Debit Accounts payable for amount after discount, credit cash for amount after discount.

Recording paying off accounts payable outside of discount period (gross method

Debit Accounts payable for remaining balance on invoice, Debit Purchases discounts lost for amount of discount missed out on (amount paying off x discount %), Credit Cash for total cash actually paid (remaining balance + discount).

Adjusting entry if inventory is less than expected (perpetual)

Debit COGS, Credit Inventory

Adjusting entry if inventory is more than expected (perpetual)

Debit Inventory, Credit COGS