Gross Method vs. Net Method (Seller Transactions)

When journalizing sales transactions in an intermediate accounting course, it is important to differentiate between the methods that the company is using. In this lesson, we will explore the net method versus the gross method for accounting for sales transactions.

Note: We will assuming that this company uses the perpetual method instead of the periodic method.

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The major difference between journalizing for sales using the gross method vs the net method is when the discount is recorded.

The gross method will initially ignore discounts until the date of payment, and if that payment is received within the discount period, it will record the discount with a debit to sales discounts (a contra-revenue) account.

The net method assumes that the buyer will pay within the discount period, and acknowledges the discount on the date of the initial sale. If the buyer does not take advantage of the discount being offered and pays outside of the discount window, then the company will recognize that difference by crediting the sales discounts forfeited account. 

Examples of both methods can be seen in the Excel problem below. Please watch the video explanation for a full understanding of the differences between the two methods. 

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It looks like you’ve mastered this lesson. Good work!