Question

What does the JE look like when recording cash payment when paid within the discount period (XR is a contra-account to revenue)?

Answer 1

The JE for a cash payment made within the discount period records the payment, reduces the accounts payable, and debits the sales discounts (XR) account to reflect the discount taken.

Step-by-step explanation:

When recording a cash payment made within the discount period, the journal entry (JE) will reflect the payment against the accounts payable and record the discount received. Assuming 'XR' stands for 'sales discounts' and is a contra-revenue account, here is how the JE would look:

• Debit Accounts Payable to reduce the liability for the original invoice amount.
• Credit Cash for the amount paid, which would be less than the invoice amount due to the discount.
• Debit Sales Discounts (XR) for the amount of the discount received.

This entry shows the company taking advantage of the payment discount offered by the supplier for early payment, thereby saving on costs. Recording the discount in a contra-revenue account properly reflects the reduction in revenue associated with the sale.