Yankee Company uses the net method of recording purchase discounts on inventory and the perpetual inventory system. Yankee Company records a payment within the discount period. Which journal entry is prepared?
A) Debit Accounts Payable and credit Cash for the gross amount of the purchase.
B) Debit Accounts Payable and credit Cash for the net amount of the purchase.
C) Debit Accounts Payable, credit Cash and credit Inventory.
D) Debit Accounts Payable, credit Cash and credit Interest Revenue.

Question

Quizplus · Accepted Answer

Under the net method, purchases are recorded at the net amount, assuming the discount will be taken. When payment is made within the discount period, Accounts Payable is debited and Cash is credited for the net amount of the purchase.

Yankee Company Uses the Net Method of Recording Purchase Discounts