Question

Based on the following information, what would be recorded as purchases discount if the invoice is paid within the discount period?
1. $5,000 of merchandise inventory was ordered on April 2, 2016.
2. $2,000 of this merchandise was received on April 5, 2016.
3. On April 6, 2016, an invoice dated April 4, 2016, with terms of 2/10, net 30 for $2,150 which included a $150 prepaid freight cost, was received.
4. On April 10, 2016, $500 of the merchandise was returned to the seller.

Answer 1

Answer:

$30

Explanation:

2/10 net 30 means the supplier extends 30 days credit to the purchaser. If the payment is made between 10 days and 30 days, no discount is allowed.

However if the payment is made within 10 days, 2% of net purchase price would be allowed as a discount by the supplier.

Now, Net Purchases = Total invoice price - freight - purchases returns

Net Purchases =  $2150 - $150 - $ 500

Net Purchases= $1500

Rate of discount = 2%

Purchases discount = 2% of 1500= $30 will be allowed if the payment is made within the discount period.