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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

You are working as a summer intern at a rapidly growing organic food distributor. Part of your responsibility is to assist in the accounts payable department. You notice that most bills from suppliers are not paid within the discount period. The manager of accounts payable says the bills are organized by vendor, like the accounts payable ledger, and she is too busy to keep track of the discount periods. Besides, the owner has told her that the 1% and 2% discounts available are not worth worrying about.

Write a memo to the owner explaining why it is expensive not to take advantage of cash discounts on credit purchases. In addition, suggest a way to file (organize) supplier invoices so that they are paid within the discount period.

To determine

Prepare a memorandum to the owner explaining the advantage of purchase discounts.

Explanation

Purchase discounts: The sellers offer a reduction in purchase price on initial purchases, to accelerate the collection of on account purchases, by their customers, within the purchase terms promptly. Such a reduction in purchase price is referred to as purchase discount.

Prepare a memorandum to the owner explaining the advantage of purchase discounts.

MEMO

Date:        March 21, 2019

To:        The Owner

From:        Ms J

Subject:  Importance of Purchase Discounts

In the gross method, company records the purchases at gross price. The purchase discounts are not deducted from purchases...

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