A Disadvantage of Using the Gross Price Method to Account

question 57

Multiple Choice

A disadvantage of using the gross price method to account for cash discounts extended by the seller to its customer is that

• A)the method reports accounts receivable at the net realizable value
• B)the method overstates the current sales and the accounts receivable at the end of the period
• C)the method requires more bookkeeping than the net price method
• D)the method enables sales returns and allowances to be recorded at gross instead of net amounts

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Definitions:

Credit Terms

Conditions under which credit is extended by a lender to a borrower, including repayment terms and interest rates.

Average Inventory

The mean value of inventory held by a company over a specific period of time, calculated to assess inventory levels and management efficacy.

Carrying Cost

Expenses associated with holding inventory, including storage, insurance, and depreciation.

EOQ

Economic Order Quantity, a formula used to determine the optimal quantity of stock to order that minimizes total inventory costs.