On June 10, Purcey Company purchased $7,100 of merchandise from Guyer Company, terms 4/10, n/30. Purcey pays the freight costs of $400 on June 11. Goods totaling $600 are returned to Guyer for credit on June 12. On June 19, Purcey Company pays Guyer Company in full, less the purchase discount. Both companies use a perpetual inventory system.
Prepare seperate entries for each transaction.
Perpetual Inventory System
There are two ways of recording purchases and cost of goods sold. The perpetual inventory system records the purchases and sales directly as they happen. The cost of goods sold can be easily determined without waiting for the closing of the period as what is done with the other system, periodic inventory. Also, the inventory amount can be easily looked up with the perpetual inventory system because the account is continuously updated during purchases and/or sales. Thus, management can determine the gross profit faster in the perpetual inventory system.
Answer and Explanation: 1
We will prepare separate entries for the buyer (Purcey Company) and the seller (Guyer Company) for each of the given transactions. The June 10...
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fromChapter 1 / Lesson 15
Learn about the perpetual inventory system and how it is used. Explore the advantages of perpetual inventory systems and compare perpetual vs. periodic inventory.