Chapter 7
Inventory: Merchandising Transactions
178
Assume Tools 4U made the payment on January 10, the amount for
the bill will be $4,200 less the $84 discount ($4,200 × 2%). Since
the business is paying less for the inventory, the value of the
inventory needs to decrease by the value of the discount.The entry
to record the payment is shown in Figure 7.9.
The discount of $84 is credited to inventory because the adjustment
is made to reflect the true cost of the goods.
If Tools 4U decides not to pay the amount owing within 10
days, then it is not entitled to take the discount. It must pay the
full amount of $4,200 within 30 days of the invoice date. This
payment is just like paying any other amount that is owed to a
supplier. Cash will decrease and accounts payable will decrease by
the amount owed. The entry is shown in Figure 7.10. Notice the
date is more than 10 days past the invoice date.
No change in owner’s equity
BALANCE SHEET
INVENTORY
– $84 CR
CURRENT ASSETS
CASH
PREPAID
EXPENSES
PROPERTY, PLANT
& EQUIPMENT
ACCOUNTS
RECEIVABLE
LONG-TERM
ASSETS
ACCOUNTS
PAYABLE
– $4,200 DR
– $4,116 CR
CURRENT LIABILITIES
UNEARNED
REVENUE
BANK LOAN
OWNER’S EQUITY
OWNER’S
CAPITAL
OWNER’S
DRAWINGS
LONG-TERM
LIABILITIES
Journal Page 1
date
2016
account title and explanation
debit Credit
Jan 10 Accounts Payable
4,200
Cash
4,116
Inventory
84
Paid invoice and took purchase discount
______________
fIGuRe 7.9
No change in owner’s equity
BALANCE SHEET
INVENTORY
CURRENT ASSETS
CASH
PREPAID
EXPENSES
PROPERTY, PLANT
& EQUIPMENT
ACCOUNTS
RECEIVABLE
LONG-TERM
ASSETS
ACCOUNTS
PAYABLE
– $4,200 DR
– $4,200 CR
CURRENT LIABILITIES
UNEARNED
REVENUE
BANK LOAN
OWNER’S EQUITY
OWNER’S
CAPITAL
OWNER’S
DRAWINGS
LONG-TERM
LIABILITIES
Journal Page 1
date
2016
account title and explanation
debit Credit
Jan 24 Accounts Payable
4,200
Cash
4,200
Paid amount owing to Roofs and More
______________
fIGuRe 7.10
