The use of a purchase discount Lost account implies
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Video Answer:  Get the answer to your homework problem. Try Numerade free for 7 days We don’t have your requested question, but here is a suggested video that might help. Related QuestionUnder the gross method of accounting for purchases: a. The purchase of inventory is recorded for its full amount. b. The amount paid for inventory during the discount period is the full amount of the purchase minus the discount. c. The amount paid for inventory after the discount period is the full amount of the purchase. DiscussionYou must be signed in to discuss. Video TranscriptThe full amount of the purchase, minus the discount, is recorded under the growth gross Method of accounting. The full amount of the purchase is shown in the amount paid for inventory after the discount period. The net method records an invoice at a full price, but the gross method does not. The Gross Method assumes that the customer will not take advantage of the discount. It is correct that the purchase of inventory is recorded for its full amount or the full amount of purchase. The account Purchase Discounts Lost is a general ledger account used by a company that records vendors' invoices using the
net method. A debit amount is entered in Purchase Discounts Lost only if a company fails to pay a vendor's invoice within the vendor's early payment discount period. Purchase Discounts Lost is considered to be an interest
expense or a financing charge resulting from the buyer not being able to pay the cash price. (Recall that in accounting cost is defined as the cash amount or the cash equivalent amount.) Assume that a retailer's policy is to always pay a vendor's legitimate invoice within the early payment discount period if such a discount is offered. Also assume that the retailer received a vendor's invoice for $1,000 which has payment terms of 2/10,
net 30 days. After reviewing and approving the invoice, the retailer will enter the invoice in its accounting records with a debit of $980 ($1,000 minus 2% discount) to Purchases or Inventory and a credit of $980 to Accounts Payable. If the retailer pays the vendor's invoice within the 10-day early payment discount period, the retailer will record the payment with a debit of $980 to Accounts Payable and a credit of $980 to Cash. However, if the retailer fails to pay the invoice within the
early payment discount period, the retailer is required to remit $1,000. In that case the retailer will credit Cash for $1,000; debit Accounts Payable for $980; and debit Purchase Discounts Lost for $20. Note that the cost of the goods purchased remains at $980 (the cash price). The uses of a Purchase Discounts Lost account implies that the recorded cost of a purchase inventory item is its Nội dung chính Show
A) invoice price B) invoice price plus the purchase discount lost. C) invoice price less the purchase discount taken D) invoice price less the purchase discount allowable whether taken or not. Q: Which of the following transactions would not result in an adjustment to the inventory account under… A: Sale of merchandise on cash and credit and merchandise return all includes inventory account but… Q: Under the perpetual inventory system, cost of goods sold is debited when inventory is sold and… A: Solution: Under perpetual inventory system, inventory is updated with every purchase and sales. Cost… Q: der the periodic inventory system, all increases and decreases in inventory, such as purchases,… A: Solution: False. Under periodic inventory system Daily inventory records are not maintained. 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Opening inventory + purchases… A: Purchases refer to the business activity of procurement goods (either finished or raw materials) or… Q: Discuss the treatment of freight-in, purchase returns, purchase discounts, normal spoilage, sales… A: Retail inventory method: It takes into account all the retail amounts that is, the current selling… Q: Multiple choice question In a credit sale of inventory using the perpetual inventory method, which… A: Perpetual inventory also known as continuous inventory is an inventory system which records the… Q: Which account balance is NOT used to compute the cost of goods sold? a.Merchandise Inventory… A: Formula: Cost of goods sold = Beginning Merchandise inventory + Net Purchases - Ending Merchandise… Q: When merchandise purchased on account is returned under the perpetual inventory system, the buyer… A: Introduction: Journals: Recording of a business transactions in a chronological order. 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Q: 3.Which of the following transactions would not result in an adjustment to the inventory account… A: Perpetual inventory system is the one in which the record relating to the inventory is to be… Q: What is the treatment of the following items in connection with the retail inventory method? d.… A: A retail business is one that buys goods in bulk from the wholesaler and sells them in smaller… Q: What is the estimate of ending inventory using the dollar-value LIFO retail method? A: Beginning inventory layer at base year retail = Beginning inventory at retail ÷ Base cost index… Q: According to the expense recognition principle, inventory costs are expensed as cost of goods sold… A: True Q: Is purchases is the account to be debited upon purchase of merchandise under the perpetual inventory… A: Perpetual Inventory System It is the most important part of the business to enter the transactions… Q: Is purchases is the account to be debited upon purchase of merchandise under the perpetual inventory… A: Journal is the book prepared by the management to record the transactions in a chronological manner.… Q: Is purchases is the account to be debited upon purchase of merchandise under the perpetual inventory… A: The journal entries are prepared to keep the record of day to day transactions of the business. Q: Both the gross profit method and the retail inventory method provide a way to estimate ending… A: Gross Profit Method: Under this method, the beginning inventory is added to the net purchases during… Q: Both the gross profit method and the retail inventory method provide a way to estimate ending… A: Gross Profit Method: Under this method, the beginning inventory is added to the net purchases during… Q: A company records inventory at gross invoice price. Theoretically, how should the following affect… A: Solution: Interest on inventory loan do not affect cost of inventory, it is working capital loan… Q: Both the gross profit method and the retail inventory method provide a way to estimate ending… A: Gross Profit Method: Under this method, the beginning inventory is added to the net purchases during… Q: Is purchases is the account to be debited upon purchase of merchandise under the perpetual inventory… A: As per the perpetual account, all the transactions related to inventory are recorded through the… Q: When inventory is held on consignment it should be? Derecognized Reported as cost of goods sold… A: Solution: When inventory is held on consignment it should be "Derecognized" as inventory is not… Q: Purchased inventory received is added to the inventory records after all of the following are… A: THE PURCHASER OR BUYER OF INVENTORY WILL RECONCILE PURCHASE ORDER MADE , INVOICE ISSUED BY VENDOR… Q: When using the periodic inventory system, which of the following generally would not be separately… A: Periodic inventory system: The method or system of recording the transactions related to inventory… Q: Which of the following statements is true for a company that uses a periodic inventory system?… A: Only inventory account is used for all the inventory transactions in the perpetual inventory system.… Q: 4. Which accounts are affected in the closing process under a perpetual inventory system? Oincome… A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new… Q: Under the periodic inventory system, the Purchases account is used to record: a. purchases of any… A: The periodic inventory system records the cost of goods sold at the end of reporting period instead… Q: Under the perpetual inventory method, what account is credited when adjusting for the estimated cost… A: Perpetual inventory system is the system of maintaining the inventory records perpetually throughout… Q: Merchandise Inventory is classified on the balance sheet as? O A. Current Liability O B. Non-current… A: Merchandise inventory is the goods in hand that the company holds. It is classified as a current… Q: The inventory valuation method which assumes that the items purchased first are the first items to… A: Valuation of an inventory depends upon which items are sold first in the inventory cycle. This gives… Q: Which of the following is the correct journal entry for a return of goods that were purchased on… A: As periodic inventory system purchases and sales are used instead of merchandise inventory. Q: The sum of ending inventory and cost of goods sold isa. net purchases.b. beginning inventory.c. cost… A: Cost of goods sold is the cost price of the goods at which the goods are sold. Q: Assuming a periodic inventory system is used, the entry to record a purchase of merchandise on… A: Assuming a periodic inventory system is used, the entry to record a purchase of merchandise on… Q: When merchandise that was sold is returned, a credit to sales returns and allowances is made by the… A: As per perpetual inventory system, inventory records are updated after every transaction. When… Q: What is the cost-to-retail percentage to be used for ending inventory calculations? A: Click to see the answer Q: 2. When Inventory is sold, how is the cost of goods sold account affected? Briefly explain A: Inventory is an asset which is recorded in the balance sheet . It is the merchandise owned by the… Q: 1. Net purchases equal the invoice amount and? a. plus freight-in, plus discounts b. less purchase… A: Purchases means where the goods has been purchased for the resale purpose. Gross purchases means… Q: Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. The entry… A: Inventory system of book keeping means where proper books of account relating to inventory has been… Knowledge Booster Learn more about Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below. 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Reeve, Jonathan Duchac Publisher:Cengage Learning Intermediate Accounting: Reporting And Analysis ISBN:9781337788281 Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach Publisher:Cengage Learning Income Tax Fundamentals 2020 ISBN:9780357391129 Author:WHITTENBURG Publisher:Cengage College Accounting (Book Only): A Career Approach ISBN:9781337280570 Author:Scott, Cathy J. Publisher:South-Western College Pub What is a purchase discount account?Purchase Discounts is a contra expense account with a credit balance that records the value of purchase cost deductions granted by a seller if a buyer makes a payment within an allowable time period, used as an incentive to encourage prompt payment of invoices. What is a purchase discount quizlet?A purchase discount is a reduction in price that a supplier or wholesaler offers to a retailer or store. The supplier may receive the purchase discount for different reasons. What is the result of failing to record a purchase of merchandise on account even though the goods are properly included in the physical inventory?The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in: an understatement of liabilities and an overstatement of owners' equity. Which should not be taken into account when determining the cost of inventory?Do not add any administrative or selling costs to the cost of inventory. The costs that can be included in an inventory valuation are direct labor, direct materials, factory overhead, freight in, handling fees, and import duties. What is discount lost account?Purchase discounts lost is a general ledger account that contains the amounts a business did not save through its failure to take early payment discounts offered by suppliers.
What is the purpose of purchase discount?Businesses use discounts and allowances to encourage customers to buy from them or to pay an outstanding bill sooner. Incentives used to motivate sales are called discounts while those used to motivate payments are called allowances (which apply only to purchases made on credit).
Are purchase discounts lost expenses?Definition of Purchase Discounts Lost
Purchase Discounts Lost is considered to be an interest expense or a financing charge resulting from the buyer not being able to pay the cash price.
What is a purchase discount account?Purchase Discounts is a contra expense account with a credit balance that records the value of purchase cost deductions granted by a seller if a buyer makes a payment within an allowable time period, used as an incentive to encourage prompt payment of invoices.
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