Question

TNT Corp. pays an invoice for $4500 in time to take a 5% discount. The journal entry to record the payment of this invoice is:

a) Debit Accounts Payable $4500; Credit Cash $4500
b) Debit Cash $4275; Credit Accounts Payable $225
c) Debit Accounts Payable $4275; Credit Cash $4275
d) Debit Cash $4500; Credit Accounts Payable $225

Answer 1

The correct journal entry for paying an invoice with a discount is to debit Accounts Payable for the full invoice amount and credit Cash for the amount paid post-discount. The discount is credited to Accounts Payable or a Discounts account.

Step-by-step explanation:

The correct journal entry to record the payment of an invoice where TNT Corp. takes a 5% discount on $4500 is to both debit and credit differing amounts. The entry would be a debit to Accounts Payable for the full amount of the invoice (since this is the amount recorded as a liability on the books) and a credit to Cash for the amount actually paid after taking the discount.

Calculation of Discounts and Journal Entry

The discount amount can be calculated as 5% of $4500, which is $225. Therefore, the payment made after the discount is $4500 - $225 = $4275. The correct journal entry would be:

• Debit Accounts Payable $4500;
• Credit Cash $4275;
• Credit Accounts Payable or Discount Taken for the discount of $225.

This records the reduction in liability (Accounts Payable) and the cash paid out, as well as the discount capitalized on by TNT Corp.