Q.2. A company that uses the perpetual inventory system purchased $8,500 worth of inventory on September 25. Terms of the purchase were 2/10, n/30. The invoice was paid in full on October 4. Prepare the journal entries to record these merchandise transactions.
guoyhuih
To prepare the journal entries for the merchandise transactions, we'll need to consider the key details provided:
1. The company purchased inventory worth $8,500 on September 25.
2. The terms of the purchase were 2/10, n/30, which means the company qualifies for a 2% discount if payment is made within 10 days, and the full amount is due within 30 days.
3. The invoice was paid in full on October 4.
Let's break down the journal entries step-by-step:
1. Record the purchase of inventory on September 25:
Inventory $8,500
Accounts Payable $8,500
This entry reflects an increase in inventory (an asset) and an increase in the accounts payable (a liability) due to the purchase.
2. Assuming the company pays within the discount period (before October 4), record the discount on the invoice:
Accounts Payable $8,500
Inventory $170
Cash $8,330
This entry reduces the accounts payable by the amount of the discount ($170) and records the reduced cost of the inventory ($8,330). The remaining amount paid is recorded as a decrease in cash.
3. If the payment is made after the discount period or no discount is taken, record the full payment on October 4:
Accounts Payable $8,500
Cash $8,500
In this entry, the accounts payable is reduced and cash is decreased by the full amount of the payment.
These journal entries accurately record the merchandise transactions in the perpetual inventory system.