Question

On November 15, 2018, Shields Company purchased inventory costing $6,200 on credit. The credit terms were 2/10, n/30. a. Assume that Shields Company paid the invoice on November 23, 2018. Prepare journal entries to record the purchase of this inventory and the cash payment to the supplier using the net-of-discount method.

Answer 1

To record the purchase of inventory made on credit, the journal entry would be Inventory 6,200 and Accounts Payable 6,200. For the cash payment made to the supplier, the journal entry would be Accounts Payable 6,200, Cash 6,074, and Purchase Discount 126. The Purchase Discount account is used to record the discount taken for early payment.

Step-by-step explanation:

The journal entry to record the purchase of the inventory on November 15, 2018, is:

Inventory 6,200

Accounts Payable 6,200

The journal entry to record the payment to the supplier on November 23, 2018, using the net-of-discount method is:

Accounts Payable 6,200

Cash 6,074

Purchase Discount 126

The Purchase Discount account is used to record the discount taken for early payment. The amount of the discount is calculated as 2% of the purchase cost, which is $6,200. Therefore, the discount amount is $6,200 * 2% = $126. The net payment to the supplier is $6,200 - $126 = $6,074.

Answer 2

Entries posted

Step-by-step explanation:

The dicount received will be credited as we paid the supplier earlier of 30 days according to the credit terms

Journal Entry to purchase inventory on November 15, 2018

Dr Inventory $6,200

Cr Accounts payable $6,200

Journal Entry for payment to supplier on November 23, 2018

Dr Accounts payable $6,200

Cr Discount received $124

Cr Cash $6076