Record the journal entry for each of the following transactions. Glow Industries purchases 750 strobe lights at $23 per light from a manufacturer on April 20. The terms of purchase are 10/15, n/40, invoice dated April 20. On April 22, Glow discovers 100 of the lights are the wrong model and is granted an allowance of $0 per light for the error. On April 30, Glow pays for the lights, less the allowance.
Journal entries:
| April 20 | | | |
|---|---|---|---|
| | | | |
| To record inventory purchased on account. | | | |
| | | | |
| April 22 | | | |
| | | | |
| To record allowance issued. | | | |
| | | | |
| April 30 | | | |
| | | | |
| | | | |
| To record payment. | | | |
Answer (1)
April 20: Purchase inventory on account: Debit Inventory $17 , 250 , Credit Accounts Payable $17 , 250 .
April 22: Record allowance: Debit Accounts Payable $0 , Credit Inventory $0 .
April 30: Pay within the discount period, taking a 10% discount of $1 , 725 . Debit Accounts Payable $17 , 250 , Credit Cash $15 , 525 , Credit Inventory $1 , 725 .
The final payment after discount is $15 , 525 .
Explanation
Understanding the April 20 Transaction On April 20, Glow Industries purchases 750 strobe lights at $23 per light. The purchase is made on account with terms 10/15 , n /40 . This means Glow Industries has 40 days to pay the full amount, but if they pay within 15 days, they get a 10% discount.
Calculating the Total Purchase Amount First, we calculate the total purchase amount: 750 × $23 = $17 , 250 . This increases both the inventory and accounts payable.
Journal Entry for April 20 The journal entry for April 20 is:
Date
Account
Debit
Credit
April 20
Inventory
$$17,250
To record inventory purchased on account
Understanding the April 22 Transaction On April 22, Glow discovers that 100 of the lights are the wrong model and receives an allowance of $0 per light. The total allowance is 100 × $0 = $0 .
Journal Entry for April 22 The journal entry for April 22 is:
Date
Account
Debit
Credit
April 22
Accounts Payable
$$0
To record allowance issued
Understanding the April 30 Transaction On April 30, Glow pays for the lights. The payment is made 10 days after the invoice date (April 20), which is within the 15-day discount period. Therefore, Glow is eligible for a 10% discount on the purchase amount less the allowance.
Calculating the Discount The purchase amount less the allowance is $17 , 250 − $0 = $17 , 250 . The discount is 10% of $17 , 250 , which is 0.10 × $17 , 250 = $1 , 725 .
Calculating the Final Payment The final payment amount is $17 , 250 − $1 , 725 = $15 , 525 .
Journal Entry for April 30 The journal entry for April 30 is:
Date
Account
Debit
Credit
April 30
Accounts Payable
$$17,250
Cash
$$15,525
Inventory
$$1,725
To record payment
Final Answer Therefore, the journal entries are:
April 20:
Date
Account
Debit
Credit
April 20
Inventory
$$17,250
Accounts Payable
$$17,250
To record inventory purchased on account
April 22:
Date
Account
Debit
Credit
April 22
Accounts Payable
$$0
Inventory
$$0
To record allowance issued
April 30:
Date
Account
Debit
Credit
April 30
Accounts Payable
$$17,250
Cash
$$15,525
Inventory
$$1,725
To record payment
Examples
Understanding and recording transactions with discounts is crucial in business. For example, a clothing store purchases inventory from a supplier with terms 2/10, n/30. This means the store gets a 2% discount if they pay within 10 days, otherwise, the full amount is due in 30 days. By paying early, the store reduces its expenses and improves profitability. Accurately recording these transactions ensures the store's financial statements reflect the true cost of goods and the benefits of efficient payment practices.
