Purchases with Terms and Returns

📦 Purchases on Account with Terms 2/10, n/30

➕ Initial Purchase on Credit

Date: November 2

Transaction: Z-Mart buys $500 of merchandise on account (not cash).

Credit Terms: 2/10, n/30

📘 Journal Entry:

Merchandise Inventory 500 Accounts Payable 500
Z-Mart is like someone shopping with a store credit card: they get the goods now and agree to pay later. The store (supplier) says, "Pay within 10 days and I’ll knock 2% off. Otherwise, pay the full price in 30 days."

💰 Payment Within Discount Period (Nov 12)

Discount: 2% of $500 = $10

Amount Paid: $490

Savings: $10 saved by paying early

📘 Journal Entry:

Accounts Payable 500 Merchandise Inventory 10 Cash 490
It’s like getting a $10 coupon for paying early. That $10 discount reduces the inventory value, because we record assets at cost, and the actual cost we paid is $490—not $500.

🕒 Payment After Discount Period (Dec 2)

Z-Mart misses the 10-day discount, so pays full $500.

📘 Journal Entry:

Accounts Payable 500 Cash 500
They missed the coupon deadline. So they pay full price—no discount, and inventory stays valued at $500.

🧾 Purchase Returns and Allowances

🟡 Purchase Allowance

The buyer keeps the item, but the seller reduces the price.

Reason: Defective or damaged, but still usable.

You buy a dented can of soup. The store says, “You can keep it, I’ll just give you $1 off.”

🔁 Purchase Return

The buyer sends the item back. Seller removes the sale from their books.

You return a shirt to a clothing store and get a refund.

✅ After Posting All Entries

The table in the image (not shown here) summarizes how the accounts are affected based on whether:

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