Assume That the Net Price Method of Recording Purchases Is

question 34

Multiple Choice

Assume that the net price method of recording purchases is used and the business uses the perpetual method of inventory recording. Record the purchase of goods for $5000 on credit, on terms of 3/10, n/30. Ignore GST.

• A) Debit inventory $5000; credit accounts payable $5000
• B) Debit inventory $4850; debit discount allowed $150: credit accounts payable $5000
• C) Debit inventory $4850; credit accounts payable $4850
• D) Debit purchases $5000; credit accounts payable $4850; credit discount allowed $150

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Definitions:

Cash Basis

An accounting method in which revenues and expenses are recorded only when cash is received or paid out.

Zero NPV

A situation where the net present value of a project or investment equals zero, indicating that the expected cash flows exactly discount the initial investment, resulting in no net gain or loss.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period.

Cash Basis

An accounting method where revenue and expenses are recorded only when cash is received or paid, respectively.