A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 8, it paid the full amount due. Assuming the company uses the gross method to record purchases, the journal entry to record the cash paid on July 8 is? Also what is the gross method to record purchases?

Debit: Account payable $1,600

Credit: Cash: ($1,600 - $1,600*2%) $1,568

Credit: Discount received $32

Explanation:

Requirement 1:

I have recorded the journal entries for all of the dates, just to clear the whole picture.

On July 5:

When the purchase is made:

Debit Purchases $1,800

Credit Account payable $1,800

Since the purchase is on credit.

On July 7:

When $200 worth purchases were returned:

Debit: Account payable $200

Credit: Purchases return $200

On July 8:

When the payment was made:

Debit: Account payable $1,600

Credit: Cash: ($1,600 - $1,600*2%) $1,568

Credit: Discount received $32

Note:

Since, the payment is within the due terms, therefore, 2% discount is received upon payment on the account. $1,600 is account payable and 2% of $1,600 is $32

Requirement 2

What is the gross method to record purchases?

Under gross method, purchases are recorded at gross amount. It cash is paid within the discount period, cash discount is recorded.

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