On June 1, Addison Company purchased $ 10,000 of inventory on account from Garrison Company. Garrison offers a 4 % discount if payment is received within 15 days. Addison records the purchase using the gross method and the perpetual inventory system. The journal entry on June 1 by Addison Company includes :

a. a debit to Inventory for $9,600

b. a credit to Cash for $10,000

c. a debit to Inventory for $10,000

d. a credit to Accounts Payable for $9,600

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23 April, 16:23

On June 1, Addison Company purchased $ 10,000 of inventory on account from Garrison Company. Garrison offers a 4 % discount if payment is received within 15 days. Addison records the purchase using the gross method and the perpetual inventory system. The journal entry on June 1 by Addison Company includes :

a. a debit to Inventory for $9,600

b. a credit to Cash for $10,000

c. a debit to Inventory for $10,000

d. a credit to Accounts Payable for $9,600

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Answers (1)

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Ireland Giles · Answer 1

c. a debit to Inventory for $10,000

Explanation:

Whenever goods are purchased on a discount to be received on payment basis, the inventory is first recorded at cost.

Also as per the general rule, discount is a kind of income, and incomes are recorded only when earned, therefore, the cost of inventory shall be reduced by 4% only when the payment is made, therefore the inventory on the date of purchase shall be recorded at $10,000 only and not for $9,600.

Thus, correct option is c