A company that uses the perpetual inventory system purchased inventory for $970,000 on account with terms of 3/7, n/20. Which of the following correctly records the payment made 15 days after the date of invoice?
A) $$\begin{array} { | l | r | r | }
\hline \text { Cash } & 970,000 & \
\hline \text { Accounts Payable } & & 970,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | }
\hline \text { Accounts Payable } & 970,000 & \
\hline \text { Merchandise Inventory } & & 970,000 \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | }
\hline \text { Accounts Payable } & 970,000 & \
\hline \text { Cash } & & 970,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | }
\hline \text { Accounts Payable } & 970,000 & \
\hline \text { Merchandise Inventory } & & 29,100 \
\hline \text { Cash } & & 940,900 \
\hline
\end{array}$$

Question

A company that uses the perpetual inventory system purchased inventory for $970,000 on account with terms of 3/7, n/20. Which of the following correctly records the payment made 15 days after the date of invoice?
A) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 970,000 & \
\hline \text { Accounts Payable } & & 970,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Payable } & 970,000 & \
\hline \text { Merchandise Inventory } & & 970,000 \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Payable } & 970,000 & \
\hline \text { Cash } & & 970,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Payable } & 970,000 & \
\hline \text { Merchandise Inventory } & & 29,100 \
\hline \text { Cash } & & 940,900 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The terms 3/7, n/20 mean that a 3% discount is given if paid within 7 days of the invoice date, and the full amount must be paid within 20 days. Since the payment was made 15 days after the date of invoice, a 3% discount cannot be taken. Therefore, the payment should be recorded at the full amount of $970,000. The transaction would be recorded as a credit to accounts payable and a debit to cash for $970,000. Choice C shows this transaction correctly.

A Company That Uses the Perpetual Inventory System Purchased Inventory Cash 970,000 Accounts Payable 970,000\begin{array} { | l | r | r | } \hline \text { Cash } & 970,000 & \\\hline \text { Accounts Payable } & & 970,000 \\\hline\end{array} Cash Accounts Payable ​970,000​970,000​​

A Company That Uses the Perpetual Inventory System Purchased Inventory $\begin{array} { | l | r | r | } \hline \text { Cash } & 970,000 & \\\hline \text { Accounts Payable } & & 970,000 \\\hline\end{array}$