Question

Under the gross method of accounting for purchases:

a. The purchase of inventory is recorded for its full amount.

b. The amount paid for inventory during the discount period is the full amount of the purchase minus the discount.

c. The amount paid for inventory after the discount period is the full amount of the purchase.

Answer 1

all the options are correct:

• a. The purchase of inventory is recorded for its full amount.
• b. The amount paid for inventory during the discount period is the full amount of the purchase minus the discount.
• c. The amount paid for inventory after the discount period is the full amount of the purchase.

Step-by-step explanation:

A typical journal entry to record the purchase of merchandise would be:

January 2, 2020, merchandise purchased on credit, terms 2/10, n/30.

Dr Merchandise inventory 10,000

Cr Accounts payable 10,000

if the invoice is paid within the discount period:

January 8, 2020, invoice is paid

Dr Accounts payable 10,000

Cr Cash 9,800

Cr Purchase discounts 200

if the invoice is not paid within the discount period:

January 18, 2020, invoice is paid

Dr Accounts payable 10,000

Cr Cash 10,000