A company that uses the periodic inventory method purchases inventory of $1,000 on account with terms of 2/10 net/30. Defective inventory of $200 is returned 2 days later. Which of the following entries would be made to record the payment for the inventory if the payment is made within 10 days?
A) The accounting entry would be an $800 debit to Accounts payable and an $800 credit to Cash.
B) The accounting entry would be a $784 debit to Accounts payable, a $16 debit to Purchase discounts and an $800 credit to Cash.
C) The accounting entry would be a $16 debit to Purchase discounts, an $800 debit to Accounts payable and an $816 credit to Cash.
D) The accounting entry would be an $800 debit to Accounts payable, a $16 credit to Purchase discounts and a $784 credit to Cash.

Question

Quizplus · Accepted Answer

The company originally purchased $1,000 of inventory but returned $200, leaving $800 payable. Paying within the discount period allows a 2% discount on $800, which is $16. Therefore, Accounts Payable is debited $800, Purchase Discounts is credited $16, and Cash is credited $784.

A Company That Uses the Periodic Inventory Method Purchases Inventory