Wize University Introduction to Financial Accounting Textbook > Merchandising
Purchase Discounts - Periodic Inventory
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Purchase Discounts (Periodic)
Purchase discounts are given to buyers when they pay all or part of their outstanding balance within the supplier's discount window.
Credit Terms
- Tells the buyer:
- How long they have to pay.
- Until when can they receive a discount.
Purchase Discount
- Recorded only if discount is received
- Credit account titled Purchase Discounts.
- Partial discounts are possible
- If buyer only pays a portion of balance, that portion is given the discount.
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Example: Purchase Discounts (Periodic)
Prepare the journal entry to record the transaction on May 24th and May 31st.
May 17th: Purchased 400 units for $20 each under the terms 2/10, net/30.
May 24th: Paid supplier for half of the outstanding balance.
May 31st: Paid supplier for remaining balance
Practice: Purchase Discounts (Periodic)
ABC Inc. is a furniture retailer in Seattle, management needs your help to prepare its journal entries for the year before preparing its financial statements. The following events took place during January 2020. The company uses the periodic inventory system.
Jan 1: Began the year with $60,000 in inventory.
Jan 7: Purchased 100 units for $120 each from Supplier A on account. The terms were 2/10, n/45 and FOB shipping point.
Jan 9: Supplier A shipped the goods, the cost of the shipping was $500.
Jan 10: Received the goods from Supplier A.
Jan 13: Returned 5 defective units to Supplier A.
Jan 17: Paid entire balance to Supplier A.
Jan 18: Purchased 200 units for $90 each from Supplier B on account. The terms were 1/5, n/60 and FOB destination.
Jan 20: Supplier B shipped the goods, the cost of the shipping was $300.
Jan 22: Received the goods from Supplier B.
Jan 30: Paid balance in full to Supplier B.
Jan 31: Returned 1 defective unit to Supplier A.
Prepare the journal entry to record the transaction on January 17th.
Transactions:
| Account | Debit | Credit |
|---|---|---|