When Using a Perpetual Inventory System, Why Are Discounts Credited

question 181

Multiple Choice

When using a perpetual inventory system, why are discounts credited to Inventory?

• A)The discounts are debited to discount expense and thus the credit has to be made to merchandise inventory.
• B)The discounts reduce the cost of the inventory.
• C)The discounts are a reduction of business expenses.
• D)None of these answers choices are correct.

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Definitions:

Impairment Losses

Monetary losses identified when the book value of an asset is higher than its salvageable value.

Fair Value

An estimate of the price at which an asset or liability could be traded in a fair transaction between willing parties.

Accelerated Depreciation

A depreciation method that allows a larger depreciation deduction in the early years of an asset's life and smaller deductions in the later years.