A company sells merchandise on November 2 at a invoice price with
terms of . The goods cost . The company uses the net
method to record invoices. The customer pays the balance due on November
30 .

When using the net method, the company will record the sale at the net amount after deducting the discount offered. In this case, since the customer can take a 2% discount for paying within 10 days, the invoice amount after the discount is . Thus, this is the amount recorded as revenue.

However, since the customer pays on November 30, which is after the discount period, the company will need to adjust its entries to reflect no discount taken. The revenue recorded will be , and any unsold inventory remains on the books at its cost of , allowing the company to show a profit of when the payment is received.

This scenario can lead to important lessons in credit terms and customer payment behaviors. For businesses, understanding payment terms like helps improve cash flow management. Offering discounts can incentivize prompt payments, while documenting the consequences of missed discounts reinforces the importance of timely invoicing and follow-ups. Keeping an eye on payment timelines can save money and maintain healthy cash flow!