Question

A company 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. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, The correct journal entry to record the purchase on July 5 is: _____________
a) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.
b) Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800.
c) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.
d) Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600.
e) Debit Merchandise Inventory $1,600; credit Cash $1,600.

Answer 1

Based on the purchase details by the company, the correct journal entry to record the purchase on July 5 is c) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.

Why is this the correct journal entry?

On July 5, the amount that was purchased was still $1,800. Nothing had been returned yet. The amount that will be debited to Merchandising as an asset will therefore be $1,800.

The Accounts Payable account will be credited the same amount to reflect that the company owes money for the purchase.

In conclusion, option C is correct.

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