[Anonymous]

I noticed Becker uses a different account title than what I had learned in school. Would like to hear what you guys think is the “correct” account name.

This is in reference to the net method of accounting for discounts taken on accounts receivable. So you have $100 in sales with 2/10, n30 terms. You typically book your revenue using the net method, like so:

Db A/R 98

Cr Revenue 98

But then they don’t pay in 10 days, so you need to book that extra $2. What do you call that account?

Db Cash 100

Cr A/R 98

Cr ??? 2

Do you call it Interest Revenue? (That’s what I learned, from the Spiceland book.) Or do you call it Sales Discount Not Taken (Becker)? Or something else?

[Anonymous]

Account names vary from one textbook to another and from textbook to real world, so my best advice to you would be to not let yourself get too hung up on it. The important thing is that it's tracked and that it's in an income account. There's no a single “right” name for the account(s).

If it was me? I'd probably put it to something like Sales Discount Forfeited, so not exactly any of the names like your college or Becker books either one.

[Thrawn]

Well, its not interest, its a sales discount, so I would go with something related to discounts.

BEC 87 Feb 14
REG 84 Apr 14
FAR 82 Nov 14
AUD 86 Feb 15

[Anonymous]

I've seen it called interest before, the thought being that you truly sold the item for $98, and that the additional $2 is the equivalent of interest on a 20-day loan for the extra days that they took to pay. I think I've seen this more often on the purchaser's set of books – to record the item purchased as $98 and the $2 as a finance charge/interest paid to defer payment for an additional 20 days. I get the thought process if I sit down and think about it, but it's not instinctual to me, so that's why I'd probably use “Sales discount” if I was setting it up myself.

[Author]

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