Hawthorne Inc. uses the perpetual inventory system when recording its cash payments and cash receipts. If the company issues a check to pay for goods purchased and they pay within the discount period, identify the account used to record the discount.

Question

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Under the perpetual inventory system, when a company pays for goods within the discount period and takes advantage of the purchase discount, the discount is recorded by reducing the cost of the inventory. Therefore, the Merchandise Inventory account is credited to reflect the lower cost of the goods purchased.