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10 January, 03:43

A company purchased $2,900 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $750 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

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  1. 10 January, 03:54
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    The journal entry to record payment on 12th July is shown below:

    Dr Accounts payable $2150

    Cr Cash $2,107

    Cr discount received $43

    Explanation:

    The purchase of merchandise of $2900 on July 5 gives rise to the below journal entries

    Dr Inventory $2,900

    Cr Accounts payable $2,900

    However, the return of goods worth $750 two days after implies that the value of inventory and accounts payable have reduced by $750 each

    As a result, amount being owed is now $2150 ($2900-$750).

    Besides, the payment on July 12 was within the discount period, hence the amount paid is the $2150 outstanding less 2% discount, which gives to payment of $2,107 and discount of $43
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