Question

JR Industries purchased goods costing $5,000. The purchase was made on account with terms of 6/10, n/30. The original purchase was recorded with a DEBIT to Inventory and a CREDIT to Accounts Payable for $5,000. – The account was paid in cash after 23 days. Which ONE of the following is included in the journal entry to record the payment of cash on account after 23 days?

		CREDIT to Accounts Payable for $5,000
		CREDIT to Accounts Payable for $4,700
		CREDIT to Inventory for $300
		CREDIT to Cash for $5,000
		DEBIT to Cash for $4,700
		DEBIT to Accounts Payable for $4,700

Answer 1

When the purchase was made, inventory account was debited as inventory has come in and accounts payable was credited to increase liability.

Now when the payment is being made, we will debit the previously raised liabilty and credit cash as it is moving out. Therefore, the journal entry now would be-

Accounts payable account Dr. 5,000

    To Cash account 5,000

Implying that option 'CREDIT to Cash for $5,000' is correct

Additionally, terms are 6/10 n/30, meaning if the payment is made withing 10 days, then a discount will be provided of 6 %. And if not made in 10 days, then has to make within 30 days. As the payment has been made after 23 days, so it does not attract any discount and full payment of 5000 has to be done.