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3 March, 10:16

To record purchases on account, Caleigh's Company uses the perpetual inventory method and the gross method. On September 11, it purchased $44,000 of inventory, terms 2/10, n/30. On September 13, the company returned $4,000 worth of goods. On September 19, the supplier was paid by Caleigh's company. What should the company credit on September 19?

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  1. 3 March, 10:34
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    The company should credited on the Cash account and the Cash Discount Receipt for the settlement of the inventory with 10 days.

    Explanation:

    The detailed entry will be:

    19th Sep

    Dr Account Payable $40,000

    Cr Cash $39,200

    Cr Cash Discount Receipt $800

    (to record payable settlement and the receipt of cash discount)

    Working note: As the company paying with 10 days, the supplier will allow a 2% discount on it net inventory purchase (44,000 - 4,000 = $40,000)

    Thus, the discount will be 40,000 x 2% = $800 and Cash repayment will be 40,000 x (1-2%) = $39,200.
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