P2 Routine Activities of a Business Net and Gross MethodsEnt

P2| Routine Activities of a Business Net and Gross Methods-Entries On December 3, Ainge Printing purchased inventory listed at $7,400 from Craig Paper Supnh ber 1o for a list price of $10,300. Terms of the purchase were 3/10, n/30. On Decebe6 suppliers for these purchases. Ainge does not use a perpetual inventory system. purchase were 3/10 n/20. inge Printing also purchased inventory from Tippetts Ink Wholesa emdfi ember 16, Ainge paid both paid bo 1. Give the entries to record the purchases and invoice payments assuming that (a) the net used and (b) the gross method is used. end adjusting 2. Assume that Ainge has not paid either of the invoices at December 31. Give the year-end adiu entry if the net method is used

Solution

1.

2.

a. Entries under net method
Date	Account Title	Debit	credit
Dec.3	Inventory	7178
	Accounts Payable		7178
	(Purchase from Craig Paper Supply)
Dec.10	Inventory	9991
	Accounts Payable		9991
	(Purchase fromTippetts Ink Wholesale)
Dec.13	Accounts Payable	7178
	Cash		7178
	(Payment made to Craig Paper Supply)
Dec.20	Accounts Payable	9991
	Cash		9991
	(Payment made to Tippetts Ink Wholesale)
Under net method the purchase is recorded after adjusting the discount.
For Craig Paper Supply          discount = 3% of 7,400 = $222
purchase = $7,400 - $222 = $7,178
For Tippett Ink Wholesale          discount = 3% of 10,300 = $309
purchase = $10,300 - $309 = $9,991
b. Entries under gross method
Date	Account Title	Debit	credit
Dec.3	Inventory	7400
	Accounts Payable		7400
	(Purchase from Craig Paper Supply)
Dec.10	Inventory	10300
	Accounts Payable		10300
	(Purchase fromTippetts Ink Wholesale)
Dec.13	Accounts Payable	7400
	Discount on purchases		222
	Cash		7178
	(Payment made to Craig Paper Supply)
Dec.20	Accounts Payable	10300
	Discount on purchases		309
	Cash		9991
	(Payment made to Tippetts Ink Wholesale)
Under gross method the purchase is recorded at gross value and discount is
accounted at the time of payment.