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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

A purchase invoice for $1,200 with credit terms 2/10, n/30, and a return of $300 received by the seller prior to payment, is paid within the discount period. A check should be sent for

  1. (a) $1,200.
  2. (b) $882.
  3. (c) $900.
  4. (d) $810.

To determine

Find the correct option, the option that indicates the correct amount of debit to Cash

Explanation

Purchases: The amount of cost of merchandise bought during a certain period is referred to as cost of purchases.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare journal entry for the cash paid.

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
  Accounts Payable 900 
   Cash  882
   Purchases Discounts  18
  (Record cash paid for purchases on account)   

Table (1)

Description:

  • Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
  • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
  • Purchases Discounts is a contra-purchases or contra-costs account, and contra-purchases accounts increase the equity value, and an increase in equity is credited...

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