What is the correct journal entry to record the payment of a purchase invoice with credit terms of 2/10, n/30?
The correct journal entry to record the payment of the related invoice on the buyer's books is:
Debit Accounts Payable $600; credit Purchases Discount $12; credit Cash $588.
Explanation:
The credit terms of 2/10, n/30 mean that the buyer can take a 2% discount if payment is made within 10 days of the invoice date (discount period), otherwise, the full amount is due within 30 days. Since the vendor was paid within the discount period, the buyer can take advantage of the discount. The Purchases Discount account is a contra expense account that is used to record the discount received. The Accounts Payable account is debited to reduce the amount owed to the vendor, and the Cash account is credited for the amount paid.
Debiting Purchases or Inventory accounts is not necessary since the item has already been recorded as a purchase, and the perpetual inventory system should have already updated the inventory account. Debiting Sales Discounts is also incorrect since it is not an expense account. In summary, the correct journal entry to record the payment of the related invoice on the buyer's books is to debit Accounts Payable $600, credit Purchases Discount $12, and credit Cash $588. This entry will properly record the purchase, the discount received, and the payment made.