Crimson plc paid an invoice from a credit supplier and took advantage of the early
settlement discount offered. When the invoice was received and recorded, Crimson plc did
not expect to take the discount.
The journal entry to record the payment of the invoice is:
Answer Debit Payables, Credit Purchases, Credit Cash at bank account
But I think: Debit Payables, Debit Purchase, Credit Cash at bank account
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early settlement discount
3y ago#1The printed answer is correct.
Suppose that the invoice was $100.
When they recorded the invoice they will have debited purchases and credited payables with $100.
When they paid the invoice they will have paid less (because of the discount). Suppose that they only paid $90.
They will debit payables with $100 (because the invoice is fully paid).
They will credit cash with $90 (the cash actually paid)
They will credit purchase with $10 (because the final cost of the goods to them was $90 is now the net figure on the purchases account).
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