A company that uses the perpetual inventory system purchased $8,500 on September 25. Terms of the purchase were 2/10, n/30. The invoice was paid in full October 4. Prepare the journal entries to record these merchandise transactions.
A company that uses the perpetual inventory system purchased $8,500 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.
To record the merchandise transactions, the following journal entries need to be prepared:
1. On September 25, when the company purchased $8,500 worth of merchandise:
Debit Merchandise Inventory $8,500
Credit Accounts Payable $8,500
2. On October 4, when the invoice was paid in full, taking advantage of the discount:
Debit Accounts Payable $8,500
Debit Cash (8,500 - 2% discount) $8,330
Credit Merchandise Inventory $8,500
Note: The Cash debit is calculated by subtracting the 2% discount ($8,500 x 0.02 = $170) from the original amount.
To prepare the journal entries to record the merchandise transactions, we need to follow a step-by-step approach. Here's how we can calculate and record the transactions:
1. Calculate the cash discount:
The terms of the purchase were 2/10, n/30. This means that if the invoice is paid within 10 days, a 2% cash discount can be applied.
Cash Discount = Purchase Amount * Discount Rate
Cash Discount = $8,500 * 2% = $170
2. Determine the purchase and payment dates:
The purchase was made on September 25, and the invoice was paid in full on October 4.
3. Record the purchase transaction:
To record the purchase of merchandise, we need to debit the Purchases account and credit the Accounts Payable account.
September 25:
Purchases Dr. $8,500
Accounts Payable Cr. $8,500
4. Record the payment transaction:
To record the payment of the invoice, we need to debit the Accounts Payable account, debit the Cash Discount account (if applicable), and credit the Cash account.
October 4:
Accounts Payable Dr. $8,500
Cash Discount Dr. $170 (2% of $8,500)
Cash Cr. $8,330 ($8,500 - $170)
These journal entries properly record the merchandise transactions. Remember, it's always essential to review and consult with an accounting professional or refer to the specific guidelines and requirements provided by your organization or accounting standards when preparing journal entries.