On March 15, 2014, Ryan Company purchased $10,000 of merchandise on credit subject to terms of 2/10, n/30. Ryan Company records its purchases using the gross amount. The periodic inventory system is used. Which of the following journal entries is correct when Ryan Company pays for these goods on March 30, 2014?

Question

Quizplus · Accepted Answer

When Ryan Company pays for the goods on March 30, 2014, it will receive a discount for paying within 10 days. The discount is calculated as 2 percent of the gross amount of $10,000, which is $200. Therefore, Ryan Company will pay $9,800 ($10,000 - $200) for the goods. The correct journal entry to record this transaction is:

Accounts Payable             10,000
      Purchase Discounts    200
      Cash                               9,800

Option A is incorrect because it does not take into account the discount received for paying within 10 days.

Option C is incorrect because it records the discount as an expense instead of a deduction from the amount owed.

Option D is incorrect because it records the discount as revenue instead of a deduction from the amount owed.

On March 15, 2014, Ryan Company Purchased $10,000 of Merchandise