Carrie Company sold merchandise with an invoice price of $1,000 to Underwood,Inc. ,with terms of 2/10,n/30.Which of the following is the correct entry to record the payment by Underwood Inc. ,within 10 days if the company uses the perpetual inventory system and the gross method to record purchases?

A)
B)
C)
D)

Using the gross method, we record the purchase at the full amount and then apply the discount if the payment is made within the discount period.

When Underwood Inc. pays within the discount period of 10 days, they will receive a discount of 2% (2/10). Therefore, the amount they need to pay is $1,000 - ($1,000 x 2%) = $980.

To record the payment, we need to:

Debit: Cash $980
Credit: Accounts Receivable - Underwood, Inc. $1,000
Credit: Sales Discount $20

Option B is the only one that correctly reflects this accounting entry.