2/10-n30? i understand what it means... but how do you write a journal entry if paid during discount period?

Question

how do you write a journal entry if someone pays during the discount period (how do you state the cash they saved? a second question is how do you figure out how much someone owes if for example: If a purchase was made on march 10 for 60,000 (2/10-n30) and they didnt pay until july 18 how would you solve and write the journal entry?

thank you so much for any help because i just cant figure it out???

Thank you for your responses! they are very helpful, i understand that now...

what i dont understand is when $60000 payment is due march 5 and wasnt paid until july 18th, how do you compute how much someone would have had to pay then on the 18th. (all im given in the question is the 2/10-n30) i was thinking it was along the lines of: (the discount/the amount owed) x (365 days year/ # of days late) ??? i may be wrong but i know im supposed to figure out the interest rate somehow off of what im given....

sorry if this is confusing, but i appreciate all the help.

this is the exact question...
a purchase was made on march 10 for $60000, with terms of purchase 2/10-n30, and it was settled on july 18th.

1) i have to prepare a journal entry for that date, which i almost understand completely...

2)prepare a journal entry if 2/3 of the accounts payable balance was settled on march 19th, and the other third was settled on august 7th.

thank you for any/all of your help with these questions... i really appreciate it.

Answer 1

It means the whole sum should be paid within 30 days but if you pay within 10 days, you get a 2% discount. If you made a sale of $60k, your entry:
Dr A/cs receivable 60k
Cr Sales 60k

If the customer pays up within the 10 days, your entry:
Dr Cash 58,800
Dr Sales discount 1,200 (2% of 60k)
Cr A/cs receivable 60,000

If he pays up after the 10 days,
Dr Cash 60k
Cr A/cs receivable 60k
(he doesn't get the discount)

If a customer pays after the 10 days, he just doesn't get the 2% discount. Unless the terms and conditions of the sale allow you to charge interest, you can't decide to charge him late payment interest unilaterally. You'll just have to keep chasing him for payment. That's how people end up with bad debts in their accounts.

Answer 2

Journal Entry For Discount

Answer 3

Assumption, perpetual.

To calculate the discount. Lets say the purchase was for 500.

(.02)(500.) = 10.00

The amount you owe is 500. - 10.00 = 490.00

dr accounts payable 500.
cr cash 490.00
cr merchandise inventory 10.00

Under perpetual, returns and allowances, discounts, and transportation costs are a debit or a credit to merchandise
inventory.

The correct way to handle an account payable if the funds are not available to pay the account would be to:
1) contact the seller and see if he would offer a short term note for the amount (30, 60, 90 day note). Or, they may take a note out at the bank in order to pay on time. It simply should not be let go past the term to avoid bad credit.

If it simply was not paid until past due, there would probably be a penalty for payment late ( interest charge).

Example:
dr accounts payable 60,000.
cr cash 60,000.

A few days later you receive a bill for late charges:

dr interest expense (late charge)
cr cash (late charge)

If a short term note was offered, the account payable would be cleared and a note payable set up.

Your numbers:

dr accounts payable 60,000.
cr note payable 60,000. (terms, whatever)

If the note still was not honored, it would be null and void and the 60,000. + interest (note), would be set back up as an account payable.

I hope this helps.