For a company using a perpetual inventory system, the journal entry to record the purchase of $3,500 of goods on account, with terms of 4/10, n/30, would include a
A)debit to accounts payable of $3,500.
B)credit to accounts payable of $3,360.
C)debit to merchandise inventory of $3,360.
D)debit to merchandise inventory of $3,500.

Question

Quizplus · Accepted Answer

In a perpetual inventory system, the purchase of goods is recorded by increasing (debit) the Merchandise Inventory account and simultaneously increasing (credit) the Accounts Payable account. Since the purchase was made on credit and the terms are 4/10, n/30, there is a discount available if the account is paid within 10 days. Therefore, the initial recording of the purchase should be for the full amount of the goods, $3,500, not the discounted amount. The journal entry would be:

Debit Merchandise Inventory $3,500
Credit Accounts Payable $3,500

Option A and B are incorrect because the accounts payable should not be credited for less than the full amount of the purchase. Option C is incorrect because it only accounts for the discounted amount of the purchase, not the full amount.

For a Company Using a Perpetual Inventory System, the Journal