January 28, 2017 at 6:26 pm
Hello everyone 🙂 Am I majorly confused or is it that the possible answers to the question (and the answer that is given as correct) don’t make any sense at all?
The normal price of a purchase is $2,800, but a trade discount of 25% has been
The invoice is dated 20 July 2013 and offers a 3% discount for payment within 30 days.
Payment is received by the supplier on 15 August 2013.
What amounts should be posted to the Purchases account and to the Discount
Received account in the general ledger?
(Ignore sales tax)
A) Credit Sales account $2,800; debit discounts received account $84
B) Credit Sales account $2,100; credit discounts received account $63
C) Credit Sales account $2,100; debit discounts received account $63
D) Credit Sales account $2,037; credit discounts received account $84
And the given answer is:
C) Sales = 2,800 x 75% = $2,100; settlement discount = 3% x 2,100 = $63.
The settlement discount is credited to the discounts received account.
So, what do sales have to do with anything?
I believe that the answer should be: DR Purchases account $2100 and CR Discount Received account $63. Am I wrong?January 29, 2017 at 5:08 pm
There must be some typing error in this question, either by the publisher or by you while posting it here.
There are two aspects of this question, we’ll have to look at both.
If we look at it from Supplier’s perspective, the purchase should be a sale for him. In this case, its acceptable to Credit Sales by $2,100. But the discount account used should be the simple one, i.e the ‘Discounts Account’ containing both discount allowed (to customers) and discount received (from suppliers), because this one is a Discount Allowed, not Discount Received. If this is the scenario, then the answer provided is supposed to be right.
The other one is customer’s perspective, to which the question refers by stating that ‘what should be posted to purchases account and discount received account’. In this case, the entries should be
Dr Purchases $2,100
Cr Cash $2,037
Cr Discount Received $63
Using compound entries ignoring entries in the Accounts Payable Account.
There has to be some issue with the question. Please check it again and then tell me whether its right or not.January 29, 2017 at 7:49 pm
Thank you, I thought that there must be an error in the notes too, I just wanted to confirm that this was the problem and not me being monumentally confused… The chapter 6 (where the question is) is about Purchases and Payables, so I doubt we’re supposed to look at it from the supplier’s perspective, also the question does mention the Purchases account and the Discount Received account, it’s the answers that are irrelevant.
The question and the answer is exactly as you’ll find them on the notes (I copy-pasted them), the question is on page 81 and the answer is on page 111.January 30, 2017 at 5:52 pm
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