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Under the periodic system a buyer bought $500 of goods on account, terms 2/10 n/30, returned $100, and pays the balance within the discount period. What entry records the payment?
ADebit Accounts Payable $400; credit Cash $392; credit Merchandise Inventory $8
BDebit Accounts Payable $400; credit Cash $400
CDebit Accounts Payable $500; credit Cash $490; credit Purchases Discounts $10
DDebit Accounts Payable $400; credit Cash $392; credit Purchases Discounts $8
Answer & Solution
Correct answer: D. Debit Accounts Payable $400; credit Cash $392; credit Purchases Discounts $8
1. Balance owed after return = $500 - $100 = $400.
2. Discount = $400 x 2% = $8, so cash paid = $400 - $8 = $392.
3. Under the periodic system the discount is credited to Purchases Discounts, not to Merchandise Inventory.
4. Option B ignores the discount; C uses the pre-return $500; D wrongly credits Merchandise Inventory (perpetual treatment).
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.5 "Basic Merchandising Transactions (Periodic Inventory System)", p.105_