Med Labs has the following December 31 year-end unadjusted balances: Allowance for Sales Discounts, $0; and Accounts Receivable, $5,000. Of the $5,000 of receivables, $1,000 are within a 2% discount period, meaning that it expects buyers to take $20 in future-period discounts arising from this period’s sales.

a. Prepare the December 31 year-end adjusting journal entry for future sales discounts.

b. Assume the same facts above and that there is a $5 year-end unadjusted credit balance in Allowance for Sales Discounts.
Prepare the December 31 year-end adjusting journal entry for future sales discounts.

c. Is Allowance for Sales Discounts a contra asset or a contra liability account?