Page 75 - F3 -FA Integrated Workbook STUDENT 2018-19

Returns, discounts and sales tax

Example 2

Early settlement discount with credit suppliers

Hannah entered into the following transactions:

1 Purchased goods from Celine which had a list price of $8,000, and
which were subject to an early settlement discount of 6% if paid within
seven days. Hannah subsequently paid early to take advantage of the
early settlement terms.

2 Purchased goods from Adam which had a list price of $6,000, and which
were subject to an early settlement discount of 5% if paid within seven
days. Hannah did not pay early to take advantage of the early
settlement terms.

Required:

For each transaction, state the accounting entries Hannah should make
to record the cash payment and clearance of the amount of the
associated payable.

Solution

Debit Credit

1 Payable $8,000 Cash $7,520 $8,000 × 94%
Discount received $480 $8,000 × 6%

2 Payable $6,000 Cash $6,000

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