Carrie Company sold merchandise with an invoice price of $1,000 to Underwood, Inc., with terms of 2/10, n/30. Which of the following is the correct entry to record the payment by Underwood Inc., within the 10 days if the company uses the periodic inventory system and the gross method to record purchases?

Question

Quizplus · Accepted Answer

Using the periodic inventory system, the purchase is recorded at the net cost which is $980 ($1,000 - $20 discount). Therefore, the entry to record the sale is:
Debit Accounts Receivable $980
Credit Sales $980
When Underwood, Inc. pays within the discount period, the discount is recorded as follows:
Debit Cash $960 ($980 - $20 discount)
Debit Sales Discount $20
Credit Accounts Receivable $980
Therefore, option B is the correct entry to record the payment by Underwood, Inc. within the 10 days if the company uses the periodic inventory system and the gross method to record purchases.

Carrie Company Sold Merchandise with an Invoice Price of $1,000