On June 1, Neighbor Company purchased inventory on account with a cost of $3,000. The credit terms were 3/10, net 30. On June 2, Neighbor returned 50 percent of the inventory. Neighbor uses the perpetual inventory system. On June 8, Neighbor paid for the inventory. What journal entry did Neighbor Company prepare on June 8?

Question

Business

Nathaniel Mccullough

4 August, 14:03

On June 1, Neighbor Company purchased inventory on account with a cost of $3,000. The credit terms were 3/10, net 30. On June 2, Neighbor returned 50 percent of the inventory. Neighbor uses the perpetual inventory system. On June 8, Neighbor paid for the inventory. What journal entry did Neighbor Company prepare on June 8?

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Answers (1)

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Blaze Atkinson · Answer 1

June 8 Accounts Payable $1500 Dr

Cash $1455 Cr

Discount Received $45 Cr

Explanation:

The discount term is 3/10 which means that Neighnor company can avail a cash discount of 3% on the amount of purchases if the payment is made within 10 days of purchasing the inventory. Neighbor pays the supplier on 8 june which is in the discount period and avails the discount.

After the returns, the outstanding amount on accounts payable account was 1500 (3000 * 0.5 = 1500)

The discount received is 3% of 1500 = $45

The cash paid to settle the account is 1500 - 45 = 1455