Record journal entries for the following purchase transactions of Flower Company.

Transactions
\begin{tabular}{|l|l|}
\hline Oct. 13 & Purchased 85 bushels of flowers with cash for \$1,300. \
\hline Oct. 20 & Purchased 240 bushels of flowers for \$20 per bushel on credit. Terms of the purchase are 5/10, n/30, invoice dated October 20. \
\hline Oct. 30 & Paid account in full from the October 20 purchase. \
\hline
\end{tabular}

Journal entries:
\begin{tabular}{|l|l|l|l|}
\hline October 13 & $\square$ & $\square$ & \
\hline & $\square$ & & $\square$ \
\hline & To record inventory purchased with cash. & & \
\hline & & & \
\hline October 20 & $\square$ & $\square$ & \
\hline & $\square$ & & $\square$ \
\hline & To record inventory nurchased on account & & \
\hline
\end{tabular}

On October 13, record a debit to Inventory and a credit to Cash for $1,300.
On October 20, record a debit to Inventory and a credit to Accounts Payable for $4,800.
On October 30, calculate the 5% discount on the $4,800 purchase, which is $240.
On October 30, record a debit to Accounts Payable for $4,800, a credit to Cash for $4,560, and a credit to Inventory for $240 to reflect the discount. The final answer is the set of journal entries described above.

Explanation

Analyzing the Transactions Let's analyze the transactions of Flower Company and record the journal entries. We have three transactions to consider: a cash purchase on October 13, a credit purchase on October 20, and a cash payment on October 30 for the October 20 purchase. The key here is to understand the purchase terms '5/10, n/30', which means a 5% discount is available if the payment is made within 10 days, otherwise the net amount is due within 30 days.

October 13: Cash Purchase On October 13, Flower Company purchased 85 bushels of flowers for $1,300 in cash. This is a straightforward transaction where we debit (increase) the inventory and credit (decrease) the cash account.

October 20: Credit Purchase On October 20, Flower Company purchased 240 bushels of flowers at $20 per bushel on credit. The total purchase amount is calculated as follows: 240 bushels × $20/ bushel = $4 , 800 This increases the inventory and creates an accounts payable.

October 30: Cash Payment with Discount On October 30, Flower Company paid the account in full from the October 20 purchase. Since the payment was made within 10 days (October 20 to October 30), Flower Company is eligible for a 5% discount. The discount amount is: 0.05 × $4 , 800 = $240 The cash payment is the total purchase amount less the discount: $4 , 800 − $240 = $4 , 560

Journal Entries Now, let's record the journal entries:


October 13:



Account
Debit
Credit



Inventory
$1,300



Cash

$1,300


To record inventory purchased with cash




October 20:



Account
Debit
Credit



Inventory
$4,800



Accounts Payable

$4,800


To record inventory purchased on account




October 30:



Account
Debit
Credit



Accounts Payable
$4,800



Cash

$4,560


Inventory

$240


To record cash payment with discount




Examples
Understanding and recording purchase transactions with discounts is crucial in business. For example, a clothing store buys merchandise on credit with terms 2/10, n/30. If the store pays within 10 days, they get a 2% discount, reducing their costs and increasing profitability. Properly accounting for these transactions ensures accurate financial reporting and helps in making informed decisions about cash flow and vendor relationships. This practice is fundamental in managing a company's finances effectively.

Answered by GinnyAnswer | 2025-07-08