MM Enterprise purchased RM18,000 of merchandise on account, terms 3/10, n/30. If payment was made within the discount period, the entry to record the payment would include a credit to:
Answers
Answer:
member we want to constantly update the inventory balance to match what we paid for the inventory and for what we have on hand. We will be using ONLY 3 accounts for any journal entries as the buyer:
Cash
Merchandise Inventory (or Inventory)
Accounts Payable
Cash and Merchandise Inventory accounts are current assets with normal debit balances (debit to increase and credit to decrease). Accounts payable is a current liability with a normal credit balance (credit to increase and debit to decrease). Whenever we are the buyer, use a combination of these 3 accounts only.
Explanation:
Inventory Purchases
To illustrate the perpetual inventory method journal entries, assume that Hanlon Food Store made two purchases of merchandise from Smith Company.
On May 4, Hanlon purchased $30,000 of merchandise with credit terms of 2/10, n30 and shipping terms FOB Destination.
on May 21, Hanlon purchased $20,000 of merchandise for cash with shipping terms FOB Shipping Point.
The required journal entries for Hanlon are:
Date Account Debit Credit
May 4 Merchandise Inventory 30,000
Accounts Payable 30,000
To record the purchase of inventory on account.
May 21 Merchandise Inventory 20,000
Cash 20,000
To record the purchase of inventory with cash.
On May 4, we realize credit terms means we have not paid for it yet but will pay for it later (accounts payable) We are offered a 2% discount but do not record it yet as we do not know if we will make the discount due date. On May 21, we paid with cash so we do not have credit terms since it has been paid.