Question

A company using the perpetual inventory system purchased inventory worth $500,000 on account with credit terms of 3/15, n/45. Defective inventory of $50,000 was returned 3 days later, and the accounts were appropriately adjusted. If the company paid the invoice 25 days later, the journal entry to record the payment would be ________.

Answer 1

Day 1, merchandise purchased on account, credit terms 3/15, n/45

Dr Merchandise inventory 500,000

Cr Accounts payable 500,000

Day 4, defective merchandise is returned

Dr Accounts payable 50,000

Cr Merchandise inventory 50,000

Day 29, invoice is paid

Dr Accounts payable 450,000

Cr Cash 450,000

Since the invoice was paid after the discount period was over, the payment must be for the total amount owed.