On July 15, 2018, the Nixon Car Company purchased 2,000 tires from the Harwell C

Question

On July 15, 2018, the Nixon Car Company purchased 2,000 tires from the Harwell Company for $40 each. The terms of the sale were 3/10, n/30. Nixon uses a periodic inventory system and the net method of accounting for purchase discounts.

Required:
1. Prepare the journal entries to record the purchase on July 15 and payment on July 23, 2018.
2. Prepare the journal entry to record the payment on August 15, 2018.
3. If Nixon instead uses a perpetual inventory system, explain any changes to the journal entries created in requirements 1 and 2.

Explanation / Answer

1.

2.

3.under perpetual inventory system, in case 1 while booking purchases Inventory account will debit insteed of purchases. and at the time of payment discount will adjust with inventory. insteed of purchase discount ledger inventory account will credit.

in case 2 no no impact will be there

Jul-15 Purchases (2,000*$40) $ 80,000 Accounts payable $ 80,000 Jul-23 Accounts payable $ 80,000 Cash ($80,000*97%) $ 77,600 Purchase discounts ($80,000*3%) $    2,400

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