Question

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Answer 1

Answer:

The answers are:

• Dr accounts payable 1,000
• Cr cash 980
• Cr merchandise inventory 20

Explanation:

Since accounts payable is a liability, when it decreases, it should be debited. Since the merchandise was paid (less debt), then the company's liabilities decrease.

Since cash is an asset, when an asset decreases, it should be credited. LOL Music Store paid its debt in cash, therefore decreasing its cash account.

Since the purchase discount reduces the value of the inventory and inventory is an asset, when an asset decreases, it should be credited.

Answer 2

Answer:

Debit accounts payable $1000

Credit purchase discounts $20

Credit cash $980

Explanation:

Answer key