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 shipping point. Assume both companies use a perpetual 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 debits Sales Discounts; XYZ credits Merchandise Inventory ABC credits Purchase Discounts; XYZ debits Sales Discounts ABC debits Merchandise Inventory; XYZ credits Sales Discounts ABC credits Merchandise Inventory; XYZ debits Sales Discounts ABC debits Sales Discounts; XYZ credits Purchase Discounts ABC debits Purchase Discounts; XYZ credits Sales Discounts

Explanation / Answer

When both the company uses perpetual inventory system then it means buyer company record purchase discount as credit of merchandise inventory and seller company records sales discount as debit of sales discount.

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

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