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11 August, 08:17

A supplier offers a company terms 3/10, n/30 for a $10,000 purchase on account on January 1. The company uses a perpetual inventory system to record transactions. If the company makes the payment on January 10, the entry to record the payment will include a:

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  1. 11 August, 08:27
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    The entry to record the payment:

    Debit Accounts Payable $10,000

    Credit Purchase discount $300

    Credit Cash $9,700

    Explanation:

    Credit terms of 3/10, n/30 means that 3% discount for the payment within 10 days and the full amount to be paid within 30 days.

    On January 1, the company purchase inventory:

    Debit Inventory $10,000

    Credit Accounts Payable $10,000

    The company makes the payment on January 10 and takes the appropriate discount:

    3% x $10,000 = $300

    The entry to record the payment:

    Debit Accounts Payable $10,000

    Credit Purchase discount $300

    Credit Cash $9,700
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