Trade Payables Account Formula for Credit Purchases

Steps:

• Calculate gross payments made: cash paid to payables ($29,500) + cash discount taken ($5,000) = $34,500 (liability reduced by full invoice amount).
• Apply the payables equation: opening balance + credit purchases = closing balance + gross payments.
• Solve for credit purchases: $25,000 + credit purchases =$20,000 + $34,500.
• Credit purchases = $20,000 +$34,500 - $25,000 =$29,500.

Why C is correct:

• Matches the calculated $29,500 (standard accounting formula debits payables for gross amount when discount is taken as separate income).

Why the others are wrong:

• A. $28,000: Subtracts discount from cash paid without adjusting balances properly.
• B. $32,000: Adds discount to cash paid but misapplies balance change.
• D. $17,000: Subtracts discount and balance decrease from cash paid, ignoring gross settlement.

Final answer: C