Shankar Company uses a perpetual system to account for inventory transactions. The company purchases inventory on account on February 2 for 20,000, with terms 1/10, n/30. On February 10, the company pays on account for the inventory. Determine the financial statement effects of the inventory purchase on account on February 2 and the payment on February 10.
a) 20,000 increase in inventory, 20,000 decrease in cash
b) 20,000 increase in inventory, 19,800 decrease in cash
c) 19,800 increase in inventory, 19,800 decrease in cash
d) 20,000 increase in accounts payable, 20,000 decrease in cash