Vaughn Manufacturing sells merchandise on account for $2500 to Morton Company with credit terms of 2/14, n/30. Morton Company returns $900 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Vaughn Manufacturing make upon receipt of the check?

Dr Cash                  $1,568

Dr Sales discount       $32

Cr Accounts receivable      $1,600

Explanation:

The initial posting for the transaction would a debit of $2,500 to accounts receivable and a credit of the same amount to sales revenue account.

However, upon the return of damaged goods, an adjustment to the earlier posting would a credit of $900 to accounts receivable to show that the indebtedness has reduced by $900 and a corresponding debit to sale returns account.

However, the balance of $1600($2,500-$900) in the accounts receivable in broken into cash and discount upon receipt of check payment.

Dr cash (98%*$1600)  $1,568

Dr Sales discount         $32