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Hi, I do not understand why do we still need to deduct the settlement discount 1.2k since the question ady mentioned “payment made to supplier after deducting settlement discount of 1.2k, were 68.9k.
The question as below:-
Allister’s payables ledger control account has a balance at 1 october 20×8 of 34.5k credit. During Oct, credit purchases were 78.4k, cash purchases were 2.4k and payments made to suppliers, excluding cash purchases, and after deducting settlement discount of 1.2k, were 68.9k. Purchase returns were 4.7k.
What was the closing balance on the payable ledger control account?
My answer is 39.3k due to I didnt deduct again the settlement discount of 1.2k. However, the answer is 38.1k where it deduct again the discount.
Hope you able to clear my doubt. Thank you.
The invoice received from the supplier will be for the full amount – the settlement discount only happens if we do pay by the due date.
So if we receive an invoice for $1000, We credit payables with $1,000.
If we pay early and received a settlement discount of 10% then we will only pay $900, so debit payables with $900.The would leave a balance on payables of $100, but obviously we do not owe $100. So debit payables with $100 (and credit discounts received).
Please do watch my free lectures because I explain all this in the lectures and you cannot expect me to type out all my lectures here 🙂
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