Question

How to record a business taking an early settlement discount for a supplier invoice which they initially didn't expect to do?

a) Debit Accounts Payable, Credit Cash
b) Debit Cash, Credit Accounts Receivable
c) Debit Accounts Payable, Credit Discounts Lost
d) Debit Accounts Receivable, Credit Sales Revenue

Answer 1

To record a business taking an early settlement discount for a supplier invoice, you would debit Accounts Payable, credit Cash, and credit Discounts Lost.

Step-by-step explanation:

To record a business taking an early settlement discount for a supplier invoice that they initially didn't expect to do, you would use the following journal entry:

Debit Accounts Payable
Credit Cash
Credit Discounts Lost

The debit to Accounts Payable reflects the reduction in the amount owed to the supplier, while the credit to Cash represents the payment made at a discounted rate. The credit to Discounts Lost reflects the additional expense incurred due to taking the early settlement discount.