Cash Discounts
Response to the following problem:
In order to induce prompt payment, the Swope Company offers a cash discount of 2% to customers who make payment on their account within 10 days of the invoice date. The company's bookkeeper is not sure how these discounts should be recorded.
Required
1. Explain the methods of recording accounts receivable with cash discounts.
2. Discuss the theoretical soundness of each method.