ABC Company purchased $15,000 of merchandise on account from XYZ Company; terms

Question

ABC Company purchased $15,000 of merchandise on account from XYZ Company; terms are 1/15, n/eom, FOB destination. Assume both companies use a periodic inventory system and the buyer recorded the purchase at gross. If the invoice is paid within the discount period, how is the discount recorded by each company? ABC credits Purchase Discounts; XYZ debits Sales Discounts ABC debits Sales Discounts; XYZ credits Purchase Discounts ABC debits Merchandise Inventory; XYZ credits Sales Discounts ABC debits Sales Discounts; XYZ credits Merchandise Inventory ABC debits Purchase Discounts; XYZ credits Sales Discounts ABC credits Merchandise Inventory; XYZ debits Sales Discounts

Explanation / Answer

Both company uses perpetual inventory system so AbC company buyer company records purchase discount as merchandise inventory credit and XYZ is seller company debits sales discount.

so answer is ABC credits Merchandise Inventory; XYZ debits Sales Discounts

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