A company that uses the perpetual inventory method purchases inventory of $1,000 on account with terms of 2/10,n/30.Which of the following entries would be made to record the payment if it is made within 10 days?
A) $1,000 debit to Accounts payable and a $1,000 credit to Cash
B) $1,000 debit to Accounts payable, a $20 credit to Inventory and a $980 credit to Cash
C) $20 debit to Inventory, a $1,000 debit to Accounts payable and a $1,020 credit to Cash
D) $980 debit to Accounts payable, a $20 debit to Inventory and a $1,000 credit to Cash

Question

Quizplus · Accepted Answer

When the payment is made within 10 days, the company can take advantage of the discount offered (2% of $1,000 = $20). The entry to record the payment would be a debit to Accounts payable for $1,000, a credit to Cash for $980 (the amount paid after the discount), and a credit to Inventory for $20 (the amount of the discount). Therefore, the correct option is B.

A Company That Uses the Perpetual Inventory Method Purchases Inventory