Partial payments

Sometimes we can’t settle a complete invoice, but we can pay at least some of it and can get a discount for what we do pay. In the Quiz on Chapter 5, there is a question on this. Basically, how much do you need to pay to reduce an invoice of 9600 to 7000. So, we want the creditor (the company you owe money to) to record a payment of 2600. But your partial payment occurs within the discount period. So you don’t have to pay the full 2600. You pay less. The 2600 is the ‘amount given credit for’. The discount is 5%. So we take off 5% from what we want to have appear in the creditor company accounts. That’s 0.95*2600 = 2470. So you pay the creditor 2470 but they record your payment as being 2600. The textbook (8th edition) has a good example on page 193.