Bennett's Clothing purchased goods on credit costing $50,000 with terms of 3/10 n/30.Payment is made to the seller 7 days after the purchase.How would the payment be recorded?

Question

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Since payment is made within the discount period, Bennett's Clothing can take the 3% discount ($50,000 x 0.03 = $1,500) and pay only $48,500.

Debit Accounts Payable for $50,000 to record the initial purchase, credit Inventory for $50,000 to record the increase in inventory.

When payment is made, first credit Accounts Payable for the full amount of $50,000. 
Then, debit Cash for the discounted amount of $48,500 and credit Inventory for the amount of the discount of $1,500 (which is effectively reducing the cost of the inventory purchased).

Thus, the appropriate journal entry is to Debit Accounts Payable for $50,000, credit Cash for $48,500, and credit Inventory for $1,500.

Bennett's Clothing Purchased Goods on Credit Costing $50,000 with Terms