A Company That Uses the Perpetual Inventory Method Purchases Inventory

question 129

Multiple Choice

A company that uses the perpetual inventory method purchases inventory of $1,000 on account with terms of 2/10,n/30.Which of the following entries would be made to record the payment if it is made within 10 days?

• A) $1,000 debit to Accounts payable and a $1,000 credit to Cash
• B) $1,000 debit to Accounts payable, a $20 credit to Inventory and a $980 credit to Cash
• C) $20 debit to Inventory, a $1,000 debit to Accounts payable and a $1,020 credit to Cash
• D) $980 debit to Accounts payable, a $20 debit to Inventory and a $1,000 credit to Cash

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Definitions:

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.

FIFO

Stands for "First-In, First-Out," an inventory valuation method where the first items placed in inventory are the first sold.

Merchandise Sold

Merchandise sold refers to the completed sales or the process of selling goods that are part of a company's inventory.

Weighted Average

A calculation that takes into account the varying degrees of importance or sizes of components in a dataset, providing a measure that reflects their relative contributions.