The business purchases inventory on account. If the inventory is paid for within 10 days, the business will get a 3% discount. What is the journal entry if the inventory is paid for after 15 days? The debit is
[ Select ]
account payable
account receivable
inventory
item expense
purchase discount
and the credit is
[ Select ]
cash
account payable
account receivables
inventory
purchase discount
.

Question

The business purchases inventory on account. If the inventory is paid for within 10 days, the business will get a 3% discount. What is the journal entry if the inventory is paid for after 15 days? The debit is 
[ Select ]
account payable
account receivable
inventory
item expense
purchase discount
 and the credit is 
[ Select ]
cash
account payable
account receivables
inventory
purchase discount
 .

BlackTom AI · Accepted Answer

Question restatement: A business purchases inventory on account. If paid within 10 days, a 3% discount is available. What journal entry is made if the inventory is paid for after 15 days? The debit is [ Select ] and the credit is [ Select ].

Option analysis for the debit field:
- account payable (correct): When the company pays the amount owed for the inventory, the entry should debit the Accounts Payable account to reduce the liability that was created when the inventory was purchased on account. This reflects that the company is settling its obligation.
- cash (incorrect): Debiting Cash would imply an increase in cash, which does not occur when paying a liability; cash is credited when paying. So this is not the correct debit for the payment of a liability.
- inventory (incorrect): Debiting Inventory would increase the asset, which contradicts the act of paying off a liability tied to that inventory. The inventory asset should have been debited at purchase, not at payment.
- item expense (incorrect): This does not fit standard entries for settling inventory purchased on account; it would imply recognizing an expense rather than reducing the liability.
- purchase discount (incorrect): This is not debited when payment is made after the discount window; discounts are only recognized if they are taken, which would occur only if payment was within 10 days. Since payment is after 15 days, the discount is not applicable.

Option analysis for the credit field:
- cash (correct): Paying the liability with cash reduces cash, so Cash is credited.
- account payable (incorrect): Crediting Accounts Payable would reduce the liability on the side that is already being debited (the debit reduces the liability). However, the standard two-step entry is Debit Accounts Payable and Credit Cash for payment, not Credit Accounts Payable.
- account receivables (incorrect): This is an asset the company expects to receive from others, not related to paying a liability for inventory.
- inventory (incorrect): Crediting Inventory would reduce the asset, which is not appropriate here because the entry to settle a payable is to credit Cash, not to write off the inventory value.
- purchase discount (incorrect): Since the discount was not taken (paid after 15 days), there is no separate Purchase Discount account to credit.

Putting it together, the correct paired selections are: Debit: account payable; Credit: cash. This reflects settling the liability created at the time of purchase without applying any discount. The other options fail to align with the standard accounts affected when paying a liability in cash after the discount window.

BACC012 Online Quiz- Week 6 | LA006

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