# Exercise-6 (Gross method of recording purchases)

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. a perpetual inventory method
2. a periodic inventory method

## Solution:

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

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

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

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

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3 Comments on Exercise-6 (Gross method of recording purchases)
1. Jaytee

Can you let me know why there is no difference between these 2 methods?

1. There is a salient difference between the two. Look at the account titles used under two methods, not just the amounts.

2. Kaspar Keroney

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