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Answer: The journal entry will be a debit to purchases and a credit to accounts payable, each for $14,700.
Explanation: In the net method of recording purchases it is assumed that the company always pays in time to take advantage of the discount. In this transaction they purchased $15,000 worth of goods, but will receive a 2% discount if they pay within 10 days. The amount that they will pay is 98% x 15,000, which equals $14,700.
The entry to record the purchase a debit to purchases for $14,700 and a credit to accounts payable for $14,700.
The purchase of merchandise on credit should be recorded by debiting the merchandise inventory account and crediting the accounts payable.
Further Explanation:
Recording of purchase of goods on credit:
Net method of inventory recording:
In the net method of inventory, the inventory should be recorded after the effect of the cash discount. This method assumes that the customer would take advantage of the discounted price. The total value of the inventory should be recorded after adjusting the cash discount.
Record the journal entry for the purchase of merchandise:
The inventory account should be debited by $14,700 and accounts payable should be credited by $14,700.
Working note 1:
Calculate the net purchase value:
[tex]\begin{aligned}\text{Net purchase value}&=\text{Purchase value}-\text{Cash discount}\\&=\$ 15,000-\$300\\&=\$14,700\end{aligned}[/tex]
Working note 2:
Calculate the cash discount:
In the case, there is a cash discount of 2% for the payment within 10 days. So the cash discount should be calculated on the purchase price ($15,000).
[tex]\begin{aligned}\text{Cash discount}&=\text{Purchase cost}\times\text{Discount rate}\\&=\$15,000\times2\%\\&=\$300\end{aligned}[/tex]
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Answer details:
Grade: Senior School
Subject: Accounting
Chapter: Inventory costing
Keywords: Morgan, Inc., uses perpetual, inventory system, and the, net method, recording, purchases, On May 12, merchandise, purchase of, $15,000, was made, credit, 2/10, n/30, journal entry, to, record, this, purchase, inventory recording, accounting.
Record the journal entry for the purchase of merchandise:
