Accounting for Purchase Discounts: Net Method vs Gross Method
If a high volume company purchases $40,000 of goods, its cost will be $28,000 ($40,000 X 70%). To comply with the cost principle the company will debit Purchases (or Inventory) for $28,000 and will credit Accounts Payable for $28,000. Crediting discount received has the effect of reducing gross purchases by the amount of cash discount […]
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