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Hallo,
In the following example, why do we debit inventory only with a 40:
On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 8, Ace pays for this inventory and records which of the following using a perpetual inventory system?
Accounts Payable 2,000 (is this a Cr?)
Inventory 40/Cash 1,960 (is this Dr Inv?)
Purchase discount = $2,000 × 2% = $40.Thank you!
This question could not possibly be asked in this way in the Paper F3 exam.
Accounts payable is credited with 2,000 and inventory is debited with 2,000.
When payment is made, we credit cash 1,960 and debit payables with 1,960.
To clear the discount, we credit discounts received with 40, and debit payables with 40.
(The inventory remains at 2,000 when the discount is due to early payment)
I do explain all this in my free lectures on control accounts.
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