On July 4,a hardware manufacturing firm purchased inventory on account for $1,300.The company plans to pay $700 in the following week and the remaining amount 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

Since the company purchased inventory on account, the Accounts Payable account needs to be credited for the full amount of $1,300. Additionally, since the company now has inventory on hand, the Merchandise Inventory account needs to be debited for the same amount.

For the payment portion of the transaction, $700 will be debited from the Accounts Payable account and credited to the Cash account in the next week. And in the following week, when the remaining $600 is paid, another $600 will be debited from the Accounts Payable account and credited to the Cash account.

Therefore, the correct entry to record this transaction in a purchases journal is:

Accounts Payable        CR   $1,300
Merchandise Inventory  DR   $1,300

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