On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The journal entry that Klein makes on March 20 is:

Cash7,056  

Sales discounts     144  

           Accounts receivable  7,200

Explanation:

The journal entry is shown below:

Cash             $7,056  

Sales discounts    $144   ($7,200 × 2%)

         To  Accounts receivable       $7,200 ($7,800 - $600)

(Being the cash is recorded)

Here it debited the cash and sales discount as it increased the assets and discounts also credited the account receivable as it decreased the assets

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