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Payment terms on invoice example for Purchasing

in this video we're going to be going over discount terms and then we're going to do some purchases and some discounts associated with those purchases so uh if you're purchasing something from a company sometimes you can negotiate some terms some special terms if you pay in cash up front or if you pay within a certain time period here we've got 1 sl10 net or n30 what this stands for is you can get a 1% discount if you pay within 10 days of the sale but the whole thing is due the net amount the whole amount is due within 30 days okay if you saw something like this 25 n60 then this would mean you get a 2% discount if you pay within 5 days but the whole thing is due the net amount is due in 60 days or you could see something like this um n10 eom meaning that the whole thing is due 10 days after the end of month okay uh this isn't super popular but you will see that out there occasionally uh there's no discount associated with this it's just telling you that you have to pay within 10 days after the end of the month okay let's move on to some examples now let's say that you're purchasing some inventory and let's say that we purchased it on September 3rd uh $1,500 worth of inventory so we received inventory so we're going to debit inventory 1500 and then we're going to credit I'm going to abbreviate a/p which is Accounts Payable um not a lot of room here there we go 1,500 so we debited inventory we increased our inventory which is an asset and then we've increased our accounts payable which is a liability meaning we owe the 1500 now let's say the terms for this were 2 10 net sl30 so it says that if we pay within 10 days we get a 10% discount I mean two if we pay within 10 days we get a 2% discount so let's say 10 days later we make our payment so we're going to get a 2% discount 2% of, 1500 is $30 okay well first of all we have to eliminate our accounts payable now notice we're going to eliminate make the full accounts payable of, 1500 now we have to write a check pay them so we're going to credit cash which is our asset to reduce our asset it's going to be for [Music] $1,470 because we're not going to pay the full amount because we're paying within the 10 days so we get a 2% discount so we're actually only going to pay $1,470 now you can see that our journal entry is not in balance and we need to make balance so we're going to have to credit another $30 this I think this is going to make perfect sense to you inventory we originally recorded inventory at500 did we pay $1,500 for that we didn't we only paid $470 so we have to credit this $30 to bring it down to [Music] 1,470 so we're going to credit inventory okay so let's just take a quick look at this our inventory t account okay we originally credited it for $1,500 I mean debited it for $1,500 now we're crediting it $30 so our overall balance for this purchase of inventory is $1,470 which agrees with what we actually paid for it okay so in this video once again we went over the the terms make sure you're familiar with these terms and then these type of entries you need to pay special attention the discount period And if you are paying within the discount period this would be the journal entry if you paid let's say on September 15th then what your entry would have been is Accounts Payable 1500 and cash, 1500 if you didn't pay within the 10 days you have to pay the full amount okay good luck with the next videos we're going to go over Transportation costs allowances returns and we're going to look at sales too