If A Company Employs The Gross Method Of Recording Accounts Receivable From Customers, Then Sales Discounts Taken Should Be Reported As What?

Multiple Choice Question (MCQ) - If A Company Employs The Gross Method Of Recording Accounts Receivable From Customers, Then Sales Discounts Taken Should Be Reported As What?

Reason: The correct answer is “As A Deduction From Sales In Income Statement”, as Sales Discount is a Contra Revenue Account which is deducted from Gross Sales Revenue in Income Statement in order to calculate Net Sales.

In equation form, we can find out Net Sales as shown below:

Net Sales = Gross Sales - Sales Returns & Allowances - Sales Discounts

So, if a company or corporation employs or uses the gross method of recording / recognizing Accounts Receivable From Customers, then sales discounts taken should be reported as a deduction from Sales in Income Statement.