Question

Purchases Transactions on Company purchased mandhaton court from or Company for 142.000, 210, hortum merchand by the Common to recorder b. What could Merchandise Inventory

Answer 1

a. A cash discount is a deduction allowed by some sellers of goods or by some providers of services in order to motivate customers to pay within a specified time. The cash discount is also referred to as an early payment discount.

In this case 2/10 net 30 means if the buyer pays the due amount within 10 days, a 2% cash discount will be available to him/her or else he/she can pay the entire amount due by the end of his/her credit period which is 30 days.

The buyer has been authorized to return $8000 of goods out of the $42,000 due in total, hence the total amount now due is $34,000. If the buyer pays within the discounted period of 10 days, then he shall get a cash discount of $ 680 ($34,000*2%) and pay the balance amount of $33,320 to the seller.

b. In order to record the sales return, the buyer shall record the below journal entries

Initial Journal Entry for Purchase Return:

Trade Payable A/c	Debit
Purchase Return A/c	Credit

* Company may not use the contra -account for the purpose of purchase return. In this respect the company may debit the – Trade Payable Account directly and credit ” Purchase, or Cash A/c.” The journal entry in this respect is:

Trade Payable A/c	Debit
Purchase/Cash A/c	Credit

Hence Eikhorn will debit trade payables account.