Exercise-6 (Gross method of recording purchases)
Posted in: Inventory costing methods (exercises)
United Company made the following transactions during the month of March:
- Mar.05: Purchased merchandise worth $21,600; credit terms were 2/20, n/45.
- Mar.08: Returned merchandise to vendor worth $5,000 (gross).
- Mar.20: Payment made for merchandise purchased on March 5.
The company uses gross method of recording purchases.
Required: Prepare journal entries to record the above transactions assuming the United Company uses:
- a perpetual inventory method
- a periodic inventory method
Solution:
(1) Journal entries if perpetual inventory method is used:
*21,600 × 0.02 = 432
**21,600 – 432 = 21,168
(2) Journal entries if periodic inventory method is used:
*21,600 × 0.02 = $432
**21,600 -432 = $21,168
Can you let me know why there is no difference between these 2 methods?
There is a salient difference between the two. Look at the account titles used under two methods, not just the amounts.
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