Question

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its

a.invoice price plus the purchase discount lost.
b.invoice price.
c.invoice price less the purchase discount taken.
d.invoice price less the purchase discount allowable whether taken or not.

Answer 1

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its invoice price less the purchase discount taken.

Step-by-step explanation:

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its invoice price less the purchase discount taken.

When a company purchases inventory, it may be eligible for a purchase discount if it pays within a specified time frame. However, if the company fails to take advantage of the discount and pays the full invoice price, it records the cost of the inventory item as the invoice price less the purchase discount it could have taken.

For example, let's say a company purchases inventory worth $1,000 with a purchase discount of 5% if paid within 10 days. If the company fails to pay within the 10-day period, the recorded cost of the inventory item would be $1,000 - ($1,000 * 0.05) = $950.