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Practice prompt · Q:receivables-notes-credit-losses-and-transfers/sales-discount-measurement-001

Measure a receivable offered a settlement discount

Measure the initial price and update it at a reporting date before collection under supplied discount facts.

Updated Sep 11, 2026 Review due Nov 18, 2026
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A seller completes qualifying performance and invoices $200,000. The customer may deduct two percent for payment within the stated ten-day window; otherwise the full amount is due within thirty days. The payment right is unconditional, subject to that settlement discount.

Assume the most-likely-amount method is appropriate. Current evidence supports payment with the full discount, and the variable-consideration constraint is satisfied at the resulting net price. Exclude taxes, financing, credit-loss effects, refunds, and other changes.

At a later reporting date, the discount window has expired but no cash has arrived. Updated evidence supports the full $200,000 price. The same performance remains complete. The customer subsequently pays $200,000.

Choose the correct initial measurement and reporting-date update. Before opening the answer, write those entries and the later collection entry. Use the net-settlement formula for the initial arithmetic and explain why cash receipt does not determine the update date. The reporting-date rule is in ASC 606-10-32-14, with the treatment of completed performance in 32-43.

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Answer: a

Choice a. $200,000 multiplied by 0.98 is $196,000. Initially debit Accounts Receivable and credit Revenue for $196,000. At the later reporting date, debit Accounts Receivable and credit Revenue for $4,000 because the supported price has increased to $200,000 and performance is complete. On collection, debit Cash and credit Accounts Receivable for $200,000. Collection creates no further revenue. The net-price formula checks the discount arithmetic; the journal calculation checks the entry and balance reconciliation.