Merchandise costing $2,800 is sold for $3,800 on terms 2/30, n/60. If the customer pays within the discount period, what amount will be reported on the income statement as net sales and as gross profit?

Net sales is $3724 while gross profit is $924

Explanation:

2/30 implies that the customer receives cash discount of 2% if payment is made within 30 days of invoice date. On that premise, I calculate the net sales and gross profit as follows:

Sales $3800

less; cash discount (2%*$3800) ($76)

Net sales $3724

less costs of good sold ($2800)

Gross profit $924

Net sales is total sales less cash discount given

Gross profit is net sales minus cost of goods sold

The above is an extract of the statement of profit and loss account or income statement