Question

May 23, 1999 Sold merchandise that cost $9,000 for $17,000 to Cheyenne on account. The sale was subject to 5% trade discount. Term 3/9, n/30, FOB Shipping point. Cheyenne paid $800 for transporting items. May 24, 1999 Cheyenne returned goods that had a list price of $9,000 and costing $4,000 because they were flawed. What is the last date on which the purchaser is entitled to cash discount? Make necessary entries for the amount due to Tom assuming the collection was made on or before the last date when the purchaser is entitled to the cash discount.

Answer 1

Payment trem is 3/9, n/30 meaning 3% discount if paid within 9 dyas or net within 30 days.

May 23, 1999 is date for selling of goods. So payment willl be made on or before 31st May, 1999 for claiming 3% discount.

Date	Accounts Title	Debit	Credit
May 23	Purchase Account	$17,000
	Purchase Discount		$850
	Tom		$16,150
May 23	Transportation expense	$800
	Cash		$800
	(Alternative one entry can be made)
May 24	Tom	$3,800
	Purchase Discount		$200
	Purchase Account		$4,000
May 31	Tom	$12,350
	Cash Discount		$370.50
	Cash		$11,979.50

Cash discount = 3% of $12,350 = $370.50

At the time of Material return 5% discount will be revershed.

Note: Account in the name of "purchase return" can be open instaed of direct entry into "purchase account" in case of return.