An electronics retailer purchases $20,000 of computers for resale.The retailer spends $500 in cash for transportation cost.Under a perpetual inventory system the journal entry to record the purchase will include:
A)$20,500 will be debited to Inventory,$20,000 will be credited to Accounts Payable,and $500 will be credited to Cash.
B)$20,000 will be debited to Inventory and $20,000 will be credited to Cash.
C)$20,000 will be credited to Inventory and $20,000 will be credited to Purchases.
D)$20,500 will be debited to costs of goods sold and $20,500 will be credited to Accounts Payable.

Question

Quizplus · Accepted Answer

Under a perpetual inventory system, the purchase cost of the inventory is directly debited to the Inventory account. Therefore, the journal entry to record the purchase will include a debit of $20,500 to Inventory. The retailer also spent $500 in cash for transportation costs, which must be credited in the entry. Hence, Cash will be credited with $500. Finally, the retailer owes the supplier $20,000 for the purchase, and this amount will be credited to Accounts Payable. Therefore, the entry will include a credit of $20,000 to Accounts Payable.

An Electronics Retailer Purchases $20,000 of Computers for Resale