If a Company Uses the Gross Method of Recording Accounts

question 58

Multiple Choice

If a company uses the gross method of recording accounts receivable, then cash discounts taken should be reported as

• A)a deduction from sales in the income statement.
• B)an item of "other expense" in the income statement.
• C)a deduction from accounts receivable in determining the net realizable value of accounts receivable.
• D)sales discounts forfeited in the cost of goods sold section of the income statement.

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Definitions:

Pro Rata

A term used to describe a proportionate allocation or distribution of something, like costs or income, among participants based on a specific formula.

Discharged

A term used in legal and financial contexts referring to the release or extinguishment of an obligation or debt.

Gap Creditor

A creditor who holds a claim against a debtor that is not secured by collateral and does not qualify for priority status in bankruptcy proceedings.

Back Taxes

Taxes that have been unpaid in the year they were due, often subject to penalties and interest.