Acompany 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 28, it paid the full amount due. assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the purchase on july 5 is:

Debit Purchase Account - 1800

Credit Accounts Payable - 1800

Explanation:

The purchase amount of the merchandise is $1,800 with a discount of 2% if payment is made by the company within 30 days.

Therefore the Journal entry is to recognise the total amount $1800 as a credit purchase and credit Accounts Payable.

The Goods Returned is credited to the Return Outwards account and debited to the Accounts Payable account to reduce the amount owed by the company.

When the company finally made the payment on July which is within the Discount period. The discount will be on the Purchase amount less Goods returned[1800 - 200] which is calculated as  = 32 and also deducted from the amount payable.

Please see the attached for detailed postings.

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