On June 1,Addison Company purchased $5,000 of inventory on account from Garrison Company.Garrison offers a 3% 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 $4,850
B)a credit to Accounts Payable for $4,850
C)a debit to Inventory for $5,000
D)a credit to Cash for $5,000

Question

Quizplus · Accepted Answer

According to the gross method, the buyer records the full amount of the purchase initially, without taking into account any potential discounts that may apply later. Therefore, the journal entry by Addison on June 1 would be a debit to Inventory for the full amount of $5,000, and a credit to Accounts Payable for the same amount since it was purchased on account. The discount can be taken later if Addison pays within 15 days, but it is not recorded at the time of purchase. Therefore, option C is the correct answer.

On June 1,Addison Company Purchased $5,000 of Inventory on Account