Question

A buyer uses a periodic inventory system, and it purchases $4,000 of merchandise on credit terms of 2/10, n/30 on December 5. On December 15, it pays the invoice in full. Prepare the buyer's necessary journal entry for payment by selecting the account names from the drop-down menus and entering dollar amounts in the Debit and Credit columns. If there are multiple debits or multiple credits, enter the account titles in alphabetical order.

Answer 1

Answer:

The double to record payment of invoice on 15th December is as follows:

Dr Accounts payable   $4000

Cr Purchases discount              $80

Cr Cash account                         $3920

Explanation:

Before preparing the journal entry to record payment made o December 15, it is imperative to know the discount conditions attached to the transaction.

In other words,2/10 implies that a cash discount of 2% is up for grab if the customer pays the amount owed within 10 days of purchase.

The purchase took place on the 5th of December,but payment was made was made on the 15th December. which  was still within the grace period,hence a cash discount of 2% of $4000($80) is given off the invoice price of $4000

Also note that n/30 added in the question means that the buyer must pay the outstanding within 30 days otherwise,penalty is added.