A company that uses the perpetual inventory method purchases inventory of $2,000 on account FOB shipping point with terms of 2/10 net/30. The seller prepays $100 of transportation costs and bills the company. Which of the following entries would be made to record full payment to the seller the payment is made 20 days later?
A) The accounting entry would be a $2,100 debit to Accounts payable and a $2,100 credit to Cash.
B) The accounting entry would be a $2,100 debit to Accounts payable, a $42 credit to Inventory and a $2,058 credit to Cash.
C) The accounting entry would be a $2,100 debit to Accounts payable, a $40 credit to Inventory and a $2,060 credit to Cash.
D) The accounting entry would be a $2,060 debit to Accounts payable, a $40 debit to Inventory and a $2,100 credit to Cash.

Question

Quizplus · Accepted Answer

The correct entry involves debiting Accounts Payable for the total amount owed ($2,100, which includes the $2,000 inventory plus $100 shipping) and crediting Cash for the same amount, since the payment is made after the discount period.

A Company That Uses the Perpetual Inventory Method Purchases Inventory