Question

What is the last payment date on which the cash discount can be taken on goods sold on March 5 for $ 51,200; terms 3/10/EOM, n/60? Assume that the bill is paid on this date and prepare the correct entries on both the buyer’s and seller’s books to record the payment.

Answer 1

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What is the last payment date on which the cash discount can be taken on goods sold on March 5 for $ 51,200; terms 3/10/EOM, n/60?
N/10 EOM is a type of payment term.
The n stands for net and the first 10 is a number of days. N/10 means the payment on the invoice is due in 10 days. EOM stands for end of the month.
So when you put together N/10 EOM, it means you have to pay the invoice in full 10 days after the end of the month to avail cash discount.
In our case its 3/10/EOM. It means
It invoice have to be paid in full 10 days after the end of the month to avail cash discount of 3%.
So the last payment date on which the cash discount can be taken on goods sold on March 5 is 10th April.
Assume that the bill is paid on this date and prepare the correct entries on both the buyer’s and seller’s books to record the payment.
Journal Entry in the books of buyer						Calculation of discount
Date	Description	Post Ref.	Debit	Credit		Invoice amount	51,200.00
10-Apr	Creditor	51,200.00				Discount @ 3%	1,536.00
	Bank		49,664.00			Net amount	49,664.00
	Discount received		1,536.00
	(being creditor was paid in full and discount recited.)
Journal Entry in the books of Seller
Date	Description	Post Ref.	Debit
10-Apr	Bank	49,664.00
	Discount allowed	1,536.00
	Debtors		51,200.00
	(being debtors was paid in full and discount allowed.)