Question

A buyer purchases $250 worth of goods on credit from a seller. Shipping charges are $50. The terms of the purchase are 2/10, n/30, FOB Destination. What, if any, journal entry or entries will the buyer record for these transactions?

a) Accounts Payable $250, Shipping Expense $50, Cash $200
b) Accounts Payable $250, Cash $250
c) Accounts Payable $300, Cash $250
d) Accounts Payable $250, Shipping Expense $50, Cash $300

Answer 1

The correct journal entry would be to debit Inventory for $250, debit Shipping Expense for $50, and credit Accounts Payable for $300, reflecting the total amount owed including shipping. No cash is paid at the time of purchase under the credit terms.

Step-by-step explanation:

The question pertains to what journal entry or entries the buyer will record for the transactions at hand which involve purchasing goods on credit and accounting for shipping costs under specific payment terms. When the goods are purchased on credit for $250 with an additional shipping cost of $50, and terms of 2/10, n/30, FOB Destination, the correct journal entry from the buyer's perspective would involve increasing Accounts Payable to reflect the total amount owed to the seller, including shipping costs, as the terms FOB Destination mean the seller bears the shipping cost until delivery. Therefore, the correct entry is: Accounts Payable $300 (comprising $250 worth of goods plus $50 shipping), which will then be settled by Cash when payment is made within the credit terms or period specified.