Question

Prepare journal entries to record each of the following transactions. The company records purchases using the gross method and a perpetual inventory system.

Aug. 1 Purchased merchandise with an invoice price of $60,000 and credit terms of 3∕10, n∕30.

11 Paid supplier the amount owed from the August 1 purchase.

Short answer

Both sides of the journals total to$120,000.

Step-by-step solution

Definition of Credit Terms

Terms of payment mentioned on the invoice are known as credit terms. It reflects the credit and discount period of the credit purchase or sale.

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
1 Aug	Merchandise inventory	$60,000
	Account payable		$60,000
11 Aug	Account payable	60,000
	Discount received		1,800
	Cash		58,200
		$120,000	$120,000