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Shankar Company uses a periodic system to record inventory transactions. The company purchases inventory on account on February 2 for $25,000, with terms 2/10, n/30. On February 10, the company pays on account for the inventory. Record the inventory purchase on February 2 and the payment on February 10. (If no entry is required for a particular transaction/event, select "No journal entry required" in the first account field.)

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Answer:

Explanation:

The journal entries are shown below:

On  February 2

Inventory A/c Dr  $25,000

      To Account payable A/c $25,000

(Being purchase of inventory is recorded)

On February 10

Account payable A/c $25,000

     To Cash A/c                              $24,500

     To Inventory A/c                        $500

(Being payment is made for cash and discount is recorded under inventory)

The discount is computed below:

= Inventory amount × discount percentage

= $25,000 × 2%

= $500

The remaining balance is credited to the cash account

The company pays $24500 in total.

What is cash discount and Why it's given?

Discount means reduction in price of the good or services than the actual price. A company give cash discount to its customers in order to motivate them to make payments early.

  • On  February 2

Inventory A/c                   $25,000

     To Accounts payable A/c                  $25,000

(Being purchase of inventory)

  • On February 10

Accounts payable A/c Dr           $25,000

          To Cash A/c                                   $24,500

          To Discount received A/c                  $500

(Being cash discount receive on payment being made)

  • discount policies of the creditor:
  • terms 2/10, n/30 i.e. 2% discount is payment made within 10 days

= Inventory amount × discount percentage

= $25,000 × 2%

= $500

The remaining balance will be paid in cash.

Therefore, the company pays $24500 in total.

Learn more about discount here:

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