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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Discuss the advantages and disadvantages of the two methods of accounting for purchases discounts taken in regard to management’s needs, inventory cost, and the valuation of accounts payable.

To determine

Identify the pros and cons of the two accounting methods for purchases discount taken with reference to management’s need, the inventory cost and the valuation of the accounts payable.

Explanation

The two accounting methods for recording purchases discount are:

  • Gross Price Method:

    The gross price method ensures that the purchases are recorded at the gross price and any discount taken is deducted when they are taken.

    • They tend to include all the discounts, even if it is lost in the inventory.
    • However, this method provides the correct value of inventory only if all the discounts are taken by the company...

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