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14 December, 14:46

On July 22, a company that uses the perpetual inventory system purchased merchandise inventory at a cost of $5,650 with credit terms 2/10, net 30. If the company pays for the purchase on August 1, what would be the appropriate journal entry?

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  1. 14 December, 15:16
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    Dr Accounts payable 5,650

    Cr Cash 5,537

    Cr Purchase discount 113

    Explanation:

    the journal entry to record the purchase:

    July 22, purchase of merchandise on account, credit terms 2/10, net 30

    Dr Merchandise inventory 5,650

    Cr Accounts payable 5,650

    Since the company paid the invoice within the discount term, the journal entry should be:

    August 1, invoice paid within discount period

    Dr Accounts payable 5,650

    Cr Cash 5,537

    Cr Purchase discount 113

    The credit terms 2/10, net 30, means that if the invoice is paid within 10 days, the sales price will be lowered by 2%, and if the invoice is paid afterwards and before 30 days, the payment must cover the full invoice price.
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