 Recall, the FASB has revised the definition of revenue recognition to say that revenue is recognized when a specific critical event has occurred and the amount of revenue is measurable. For an accounting principles class, the specific critical event that occurs is either services performed or goods are delivered. The amount of the journal entry is the fair value of the assets received. Usually that will be cash, but not always. When recording revenue and the related receivable, the guidelines instruct us to record the amount at the value we expect to receive. Often, this is the amount of the sale, but some companies offer customers discounts to encourage early payment. So let's look at examples of how the journal entries differ from those who offer discounts to those who don't. So for service firms, we record revenue by debiting accounts receivable in this example. It could also be cash in some cases and crediting service revenue for $20,000. For merchandising or manufacturing firms, meaning firms that sell goods rather than services, we record revenue by debiting accounts receivable, again it could be cash in some cases, and crediting sales revenue for $20,000. But that's only the first of the two journal entries that are needed when we sell goods. We also need to record the cost of goods sold, which is an expense account, and the reduction of the inventory for the cost, not the price of the goods sold. In this example, we debit costs of goods sold and credit inventory for $8,000. If you need more understanding on this type of transaction, I would encourage you to watch the videos on buying and selling inventory. For the purposes of this video, we want to focus on the revenue component, not the cost component. When a customer pays us, we debit cash and credit accounts receivable for $20,000. Now let's look at the same examples. Only we will assume that we offer our customer a $500 discount for early payment. Since we record revenue at the amount we expect to receive, we would debit accounts receivable and credit sales revenue for $19,500. This is the $20,000 sale minus the $500 discount. Since the discount only impacts the amount of cash we expect to receive, our cost journal entry remains exactly the same. The discount does not impact the cost of our goods. When a customer pays us within the discount period, we would debit cash and credit accounts receivable for $19,500. However, if the customer does not pay us within the discount period, we would expect full payment of $20,000. In this example, we would debit cash for $20,000 and credit accounts receivable for $19,500, which is the amount this account was debited for in the original entry. At this point, our journal entry is out of balance, so we would also credit an account like sales discount forfeited for $500.