A company that uses the net method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10,n/30.On July 7,it returned $200 worth of merchandise.On July 28,it paid the full amount due.The correct journal entry to record the payment on July 28 is:
A)Debit Merchandise Inventory $1,600; credit Cash $1,600.
B)Debit Cash $1,600; credit Accounts Payable $1,600.
C)Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
D)Debit Accounts Payable $1,800; credit Cash $1,800.
E)Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600.

Question

Quizplus · Accepted Answer

The net method records purchases at the net amount, considering the discount. The initial purchase was recorded at $1,764 ($1,800 - 2% of $1,800). After returning $200, the payable is $1,568. Since the payment was made after the discount period, the discount is lost, and the entry recognizes this with a debit to Discounts Lost.

A Company That Uses the Net Method of Recording Purchases