Valerie's Market Uses a Perpetual Inventory System When Recording Its

question 33

Multiple Choice

Valerie's Market uses a perpetual inventory system when recording its cash payments and cash receipts. The business sells $6,000 of goods to a charge account customer with terms of 2/10, n/30. If the customer pays within the discount period, the entry to record the receipt of cash from the customer would include:

• A)a debit to Cash for $5,880 and a credit to Accounts Receivable for $5,880
• B)a debit to Cash for $5,880; a debit to Purchase Discounts for $120 and a credit to Accounts Receivable for $5,880
• C)a debit to Cash for $6,000 and a credit to Accounts Receivable for $6,000
• D)a debit to Cash for $5,880; a debit to Sales Discounts for $120 and a credit to Accounts Receivable for $6,000

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Definitions:

Equal Annual Withdrawals

A method of evenly distributing the total amount of an investment or asset over a fixed number of years.

Compounded Annually

A method of calculating interest where the earned interest is added to the principal at the end of each year, increasing the amount that will earn interest in the following year.

Acquisition Cost

Refers to all of the costs involved in acquiring a new asset or company, including the purchase price and all associated expenses.

Deferred Ordinary Annuity

An annuity contract that begins payments at a specified future date, as opposed to immediately after the initial investment.