Question

ABC Mart received a $20 freight bill for merchandise it purchased with freight terms of FOB shipping point. ABC Mart uses a perpetual inventory system. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges.

a. Debit Freight In $20; credit Cash $20
b. Debit Freight In $20; credit Merchandise Inventory $20
c. Debit Transportation In $20; credit Cash $20
d. Debit Merchandise Inventory $20; credit Cash $20

Answer 1

d. Debit Merchandise Inventory $20; credit Cash $20

Step-by-step explanation:

The journal entry to record the freight charges is shown below:

Merchandise Inventory A/c Dr $20

To Cash A/c $20

(Being the freight charges is paid)

In case of the perpetual inventory system, while recording the freight charges we debited the merchandise inventory instead of freight charges and credited the cash account as cash is gone which decrease the asset side of the balance sheet