Answer:
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)
