ABC Company purchased inventory on account with credit terms of 2/10, n/30. It paid the amount owed within 10 days and recorded the following entry: Given this entry, and assuming that ABC company uses a periodic inventory system, what would be the nature of Account C?

Question

Quizplus · Accepted Answer

The entry recorded suggests that ABC Company has availed the discount offered by the supplier. The account credited is "Purchase Discounts" which indicates that the company has received a discount. The account debited is "Accounts Payable" which indicates that the amount owed to the supplier has been paid. Therefore, Account C must be Purchase Discounts.

ABC Company Purchased Inventory on Account with Credit Terms of 2/10