On December 28, 2016, Videotech Corporation (VTC) purchased 10 units of a new sa

Question

On December 28, 2016, Videotech Corporation (VTC) purchased 10 units of a new satelite uplink from Tristar Communications for $25,000 each. The terms of each sale were 1/10, n/30. VTC uses the gross method to account for purchase discounts and a perpetual inventory system. VTC paid the net-of-discount amount on January 6, 2017.

1) Record the inventory purchase on account.

2) Record the payment to Tristar Communications.

This is the answer for the homework, but I don't understand, why would I credit Inventory? I'm not returning any inventory. Shouldn't it be Purchases Discount instead? I'm confused, any help would be greatly appreciiated. Thanks.

Dec. 28, 2016 Inventory $250,000 Accounts Payable $250,000

Explanation / Answer

In a perpetual inventory system when goods are purchased then Inventory account is debited instead of purchase account so when we give discount on the material than the reduction in the amount of goods will be reduced from inventory account only.

In case of periodic inventory system purchase discount is used.

So, the entries are correct.

Goods purchased.

Dec. 28, 2016

Inventory

$250,000

Accounts Payable

$250,000

Paid

Jan. 6, 2017

Accounts Payable

$250,000

Cash

$247,500

Inventory

$2,500

Dec. 28, 2016

Inventory

$250,000

Accounts Payable

$250,000

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