Question

Exercise 4-16A Recording sales, purchases, and discounts: buyer and seller- periodic LO P5

Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 3/10, n/60 and an invoice price of $19,000. The merchandise had cost Mesa $12,958. Assume that both buyer and seller use a periodic inventory system and the gross method.

1. Prepare entries that the buyer should record for (a) the purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.
2. Prepare entries that the seller should record for (a) the sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.

Answer 1

1	Buyer
a)	Purchases	19000
	Accounts Payable		19000
b)	Accounts Payable	19000
	Cash		18430	(19000-570)
	Purchase Discount		570	=19000*3%
c)	Accounts Payable	19000
	Cash		19000
2	Seller
a)	Accounts Receivable	19000
	Sales		19000
b)	Cash	18430
	Sales Discount	570
	Accounts Receiavble		19000
c)	Cash	19000
	Accounts Receiavble		19000
	In periodic system inventory impact is taken at the end of period not after every transaction as in case of perpetual system. And in case of gross method entry is recoded at invoice value considering dicount will not be taken but if dicount applies lator then it is recorded at that time.