A company uses the perpetual inventory system and recorded the following entry This entry reflects a:
A) Purchase of merchandise on credit.
B) Return of merchandise.
C) Sale of merchandise on credit.
D) Payment of the account payable and recognition of a 2% cash discount taken.
E) Payment of the account payable and recognition of a 1% cash discount taken.

Question

Quizplus · Accepted Answer

This entry indicates a payment of the account payable with the recognition of a 2% cash discount. In a perpetual inventory system, when a company pays off its account payable and takes advantage of a cash discount, it reduces the amount owed (accounts payable) and the inventory cost, reflecting the discount received.

A Company Uses the Perpetual Inventory System and Recorded the Following