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Hi John,
just a quick question. I was using the chapter revisions tests and came across a question t hat confused me.
if a business does not pay the creditor within the discount period (so do not qualify for the discount) the double entry is: Debit Payables, Credit Discounts Received.
I understand the Credit entry. But the Payables entry confuses me. Wont debiting Payables reduce the amount, when it has actually increased? I would have thought the Purchases account should have been Debited to complete the double entry, however it was a credit sale.
Could you help me clear up my thought process by explaining the logic and meaning of crediting Payables?
Thank you in advance for your help!
Either you have misread the question, or there is a mistake in the question (if it is one of ours then please let me know).
When we buy the goods, the entry is Debit purchases, Credit Payables with the full amount of the invoice.
If we do NOT pay early (and so do not get the discount) then Credit cash, Debit Payables with the full payment. The balance on payables is then zero.If we DO pay early (and so do get the discount) then Credit cash, Debit Payables with the amount paid. There will be a credit balance still on payables of the amount of the discount, so then we Debit payables, Credit discount received to clear the balance on payables.
Have you watched the free lectures on this?
Hi John,
Yes I misread the question, sorry! This is a mistake i need to watch out for on exam questions.
it is question 5 from chapter revision test 16 on this website:
A business brought goods from a supplier on credit. The supplier offered a discount if the invoice was paid within 15 days, and the business did pay the invoice within 15 days.
correct answer (as you said): Debit Payables, Credit Discount Received.
I have been using all the revision materials, but I think I will watch the lectures also. Only when I started using the site for revision did I realise how good it is (much clearer explanations then the text I used to study). I was in a rush to sit my F3 exam, but I must prioritise thorough knowledge now.
^i misread it as saying the company didn’t pay the supplier within the discount period.
Thank you for your help.
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