Shankar Company uses a perpetual system to record inventory transactions. The company purchases inventory on account on February 2 for $20,000. In addition to the cost of inventory, the company also pays $400 for freight charges associated with the purchase on the same day. Record the purchase of inventory on February 2, including the freight charges. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1.Record the purchase of inventory on account.

2.Record the payment of freight charges in cash.

Shankar Company

Perpetual System

Date               Particulars                            Debit               Credit

Feb 2           Merchandise Inventory         $ 20,400

                       Accounts Payable                                    $ 20,000

                            Cash                                                       $ 400

Explanation:

In perpetual no separate account is used for recording of freight charges. The amount is debited to merchandise inventory and credited to cash.

In the periodic system the temporary Purchase Return and Allowances Accounts accumulates the cost of all returns and allowances during a period.In periodic system each purchase, purchase returns, discounts, transportation in, transactions are recorded in separate temporary accounts.

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