LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on November 21. Demonstrate the required journal entry to record the payment.

LOL Music Store

Journal Entry to record the payment:

November 21:

Debit Accounts Payable $1,000

Credit Cash $980

Credit Cash Discounts $20

To record the payment on account.

Explanation:

a) Data and Analysis:

November 17: Inventory $1,000 Accounts Payable $1,000

November 21: Accounts Payable $1,000 Cash $980 Cash Discounts $20

b) When LOL Music Store uses the perpetual inventory system to account for its merchandise, it debits the Inventory account instead of the Purchases account on November 17.  The credit entry goes to the Accounts Payable account.  On November 21, when payment is made, the Accounts Payable is debited while the Cash account and Cash Discounts are correspondingly credited.