Question

Assume Anderson’s General Store bought, on credit, a truckload of merchandise from American Wholesaling costing $37,000. If the company was charged $790 in transportation cost by National Trucking, immediately returned goods to American Wholesaling costing $2,600, and then took advantage of American Wholesaling’s 2/10, n/30 purchase discount.

Prepare journal entries to record the inventory transactions, assuming Anderson’s uses a perpetual inventory system

Answer 1

On purchase of merchandise on credit:

Date	Account title and explanation	Debit	Credit
	Inventory	$ 37,000
	Accounts payable		$ 37,000
	(Purchase of merchandise on account)

2). When expenses such as freight-in, insurance etc. are incurred:

Date	Account title and explanation	Debit	Credit
	Inventory	$ 790
	Cash		$ 790
	( Paid for transport)

(3). When goods are returned to supplier:

Date	Account title and explanation	Debit	Credit
	Accounts payable	$ 2,600
	Inventory		$ 2,600
	( Return of merchandise to supplier)

On payment of accounts payable:

Date	Account title and explanation	Debit	Credit
	Accounts payable ($37,000-$2,600)	$ 34,400
	Purchase discounts ($34,400×0.02)		$ 688
	Cash		$ 33,712
	(Payment of accounts payable after availing purchase discount)