Question

Joy’s Fabrics purchases merchandise from a supplier on December 1st on credit, terms 1/10, n/30 for $1,400. Joy’s hopes to eventually sell that merchandise to a customer at a sales price of $2,400. When recording the payment of the invoice on December 10th in its cash payments journal, how much would Joy’s enter in the Cash Cr. column?

Answer 1

Joy’s Fabrics would enter $1,386 in the Cash Cr. column after taking the 1% early payment discount into account. The accounting profit for a separate scenario is calculated as total revenues minus explicit costs, which equals $50,000 in the given example.

Step-by-step explanation:

When Joy’s Fabrics records the payment of the invoice on December 10th in its cash payments journal, it will enter the amount that reflects the early payment discount offered by the terms 1/10, n/30. This means that Joy’s Fabrics is entitled to a 1% discount if they pay the invoice within 10 days.

Calculating the discount: $1,400 × 1% = $14.

Therefore, the amount paid and recorded in the Cash Cr. column would be $1,400 - $14 = $1,386.

In a separate scenario regarding accounting profit, the firm's accounting profit is calculated by subtracting explicit costs from total revenues.

In this case, if a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the accounting profit would be $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.