Exercise-6 (Gross method of recording purchases)

By: Rashid Javed | Updated on: September 7th, 2022

The United company made the following transactions during the month of March:

  • Mar.05: Purchased merchandise worth $21,600; credit terms were 2/20, n/45.
  • Mar.08: Returned merchandise to vendor worth $5,000 (gross).
  • Mar.20: Payment made for merchandise purchased on March 5.

The company uses gross method of recording purchases.

Required: Prepare journal entries to record the above transactions assuming the United company uses:

  1. Perpetual inventory method
  2. Periodic inventory method

 Solution:

(1) Journal entries if perpetual inventory method is used:

exercise-6-icm-img1

*21,600 × 0.02 = 432
**
21,600 – 432 = 21,168

(2) Journal entries if periodic inventory method is used:

exercise-6-icm-img2

*21,600 × 0.02 = $432
**
21,600 -432 = $21,168

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