On July 1,B. Darin Company sold merchandise costing $4,500 to S. Dee Company for $6,000, terms 2/10, n/30. Both companies use a perpetual inventory system. What is the journal entry that S. Dee Company will make on July 1?

Question

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S. Dee Company will make the following journal entry on July 1:

Debit: Merchandise Inventory $4,500
Credit: Accounts Payable $4,410
Credit: Purchase Discounts $90 ($4,500 x 2%)

The Accounts Payable account is credited for the net amount S. Dee Company owes B. Darin Company after taking the discount. The Purchase Discounts account is credited for the amount of the discount received by S. Dee Company.