Sticky Co. purchased merchandise on August 5 at a $1,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on August 14. Determine its entry to record this purchase and the subsequent payment under both the gross method and the net method by matching the action on the left with the method on the right. (Assume a periodic inventory system.)

See explanation section.

Explanation:

As the company uses a periodic inventory system, the journal entries record the purchase and payment will be as follows:

Under gross method

1. Purchase debit                 $1000

Accounts payable credit $1000

(To record the purchase of inventory)

2. Accounts payable debit  $1000

Cash credit   $980

Purchase discount credit  $20

(To record the payment.) As the company paid within the discount period, the supplier gives him a discount.

Under net method

1. Purchase debit $980

Accounts payable credit $980

$1000 - ($1000 × 2%) = $1000 - $20 = $980. As the company uses the net method, the discount will be allowed whenever the purchase has occurred.

(To record the purchase of inventory)

2. Accounts payable debit $980

Cash credit $980

As the company paid within the discount period, the supplier gives him a discount.

(To record the purchase of inventory)

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