Answer:
- DR: PURCHASES ACCOUNT - $8,000
CR: SUPPLIER ACCOUNT - $8,000
<em>BEING PURCHASE OF $8,000 MERCHANDISE ON CREDIT BY TRAVIS COMPANY</em>
- DR: SUPPLIER ACCOUNT - $160
CR: DISCOUNT RECEIVED ACCOUNT - $160
<em>BEING DISCOUNT RECEIVED FROM SUPPLIER OF 2% ON PURCHASE DUE TO PAYMENT WITHIN 10 DAYS BY TRAVIS COMPANY.</em>
- DR: SUPPLIER ACCOUNT - $7,840
CR: CASH/BANK ACCOUNT - $7,840
<em>BEING PAYMENT TO SUPPLIER FOR MERCHANDISE WITHIN THE DISCOUNT PERIOD (10 DAYS) BY TRAVIS COMPANY.</em>
Explanation:
THE SUPPLIER OFFERED TRAVIS COMPANY 2/10, NET 30 TERMS ON ITS PURCHASE. THIS MEANS THAT TRAVIS COMPANY WILL ENJOY A 2% (2%*$8,000=$160) DISCOUNT ON ITS PURCHASE IF IT PAYS WITHIN 10 DAYS OF THE DATE OF PURCHASE OR PAY THE FULL AMOUNT($8,000) IN 30 DAYS.
THE TRANSACTION INVOLVED 3 STAGES
- CREDIT PURCHASE
- TREATMENT OF DISCOUNT
- PAYMENT
THEREFORE, THE JOURNAL ENTRIES GIVEN IN THE ANSWER ABOVE EXPLAINS THE ACCOUNTING TREATMENT OF THE 3 STAGES.