On July 4, a hardware manufacturing firm purchased inventory on account for $1,300. The company plans to pay $700 in the next week and the remaining in the week after. Which of the following is the correct entry to record this transaction in a purchases journal? Assume a perpetual inventory system is used.

Question

Quizplus · Accepted Answer

The transaction involves the purchase of inventory on account. This means that the company has not paid for the inventory yet but has agreed to pay in the future. Therefore, the Accounts Payable account needs to be credited. On the other hand, the inventory purchased is an asset, and an increase in assets is recorded by debiting the Merchandise Inventory account. Option D correctly records the transaction by debiting Merchandise Inventory for $1,300 and crediting Accounts Payable for $1,300. The fact that the payment will be made in two installments is not relevant to the initial recording of the transaction.

On July 4, a Hardware Manufacturing Firm Purchased Inventory on Account