In the seller's books, when a customer takes a sales discount, which journal entry is recorded?

• A. Debit Cash for full amount; Credit Accounts Receivable for full amount.
• B. Debit Cash for net amount; Debit Sales Discounts for the discount; Credit Accounts Receivable for full amount.
• C. Debit Sales Discounts; Credit Cash for the discounted amount.
• D. Debit Accounts Receivable; Credit Cash for the discount.

Answer: (B)

When a customer pays within the discount period, the seller records the cash actually received, reduces the Accounts Receivable by the full amount due, and recognizes the discount as a deduction from revenue. The entry shows Cash for the net amount (price minus discount), a Debit to Sales Discounts (a contra-revenue account) for the discount, and a Credit to Accounts Receivable for the full amount owed.

This arrangement reflects that the sale brings in less cash than the full price and that revenue is reduced by the amount of the discount. The alternative entries either ignore the discount, debit the wrong accounts, or fail to reduce revenue appropriately, so they don’t match how discounts should affect both cash flow and revenue.