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:

Net Realizable Value

The estimated selling price of inventory in the ordinary course of business minus any costs for completion, disposal, and transportation.

Bad Debt Expense

A financial accounting concept representing the amount of revenue considered uncollectible from customers or clients.

Percent Of Sales Method

A financial forecasting model that estimates future financial statements based on assumed sales growth and historical financial ratios.

Bad Debts

Unrecoverable amounts owed to a company by debtors that are deemed uncollectable and written off as a loss.