On July 22,a company purchased merchandise inventory at a cost of $5,250 with credit terms 2/10,net 30.If the company pays for the purchase on August 7,what would be the appropriate journal entry?

Question

Quizplus · Accepted Answer

The appropriate journal entry would be to record the purchase on July 22:
Inventory - $5,250
Accounts Payable - $5,250

Then, on August 7 when the payment is made, the following journal entry would be recorded:
Accounts Payable - $5,250 x 0.98 (2% discount for paying within 10 days) = $5,145
Cash - $5,145
Inventory - $105 (the remaining cost of the merchandise, after the discount)

Option C is the correct entry that takes into account the discount received by the company.

On July 22,a Company Purchased Merchandise Inventory at a Cost