Question

Jan 30 The company purchased $45,000 of inventory on account with the terms 2/10, net 30....

Jan 30 The company purchased $45,000 of inventory on account with the terms 2/10, net 30. The company has decided to switch to the net method for all inventory purchases on account.

Required:

What is the correct journal entry for this transaction and why?

Business   Accounting   
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Answer #1
Under the net method, purchases are entered in the books at net of discount.
In other words, amount of discount is deducted from purchases while recording purchases.
In the given transaction, terms 2/10 indicates discount of 2% if paid within 10 days
The purchase will be recorded after deducting 2% discount.
The journal entry on Jan 30 is:
Debit Credit
Jan 30 Inventory 44100 =45000*(1-0.02)
        Accounts Payable 44100
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