Purchases Discount

Terms - "2/10, n/30" - Maybe be offered

2/10  mean 2% discount will be given if the obligation is paid within 10 days of the invoice date, on the entire amount.

n/30 = mean that the entire obligation, Net (n), is due the seller with in 30 days of the invoice.

The sales discount is offered but the seller, but it is the buyer who exercises the option of taking the cash discount or not.

Example:

January 2, 2013, Shehgarlynn Supermarket bought $5,150 of merchandise to Gary Company on credit, terms 5/10, n/30.  On January 9, 2013, Shehgarlynn paid cash for the goods.

Computation:

Cost of Merchandise          $5,150.00
Discount                                      5%     
Purchases Discount                 257.50


Journal Entries: Books of the Buyer

January 2, 2013  Merchandise Purchases        $5,150.00
                                      Accounts Payable - Gary Co.                         $5,150.00
                                   To record purchases of merchandise, terms offered 5/10, n/30


January 9, 2013  Accounts Payable - Gary Co.   $5,150.00
                                       Cash                                                                        $4,892.50
                                       Purchases discount                                                 257.50
                                   To record the payment of merchandise.