A Discount on a Purchase Was Debited to Merchandise Inventory

question 81

Multiple Choice

A discount on a purchase was debited to Merchandise Inventory and a credit to Accounts Payable at the time the entry was recorded. This error will cause:

• A) net income to be overstated.
• B) net income to be understated.
• C) total assets to be understated.
• D) total assets to be overstated.

Interpret the relationship between sales volume, contribution margin, and net operating income.

Grasp the concept of operating leverage and its impact on net operating income under varying sales conditions.

Apply break-even analysis in different scenarios to assess the financial viability of decisions.

Recognize the limitations and assumptions underlying break-even and incremental analysis.

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Definitions:

Accounts Receivable

Accounts receivable is the balance of money due to a firm for goods delivered or services provided but not yet paid for by customers.

Disbursement of Funds

The process of paying out money from a fund or account to various recipients.

Blanket Lien

A legal claim that gives a lender rights to the borrower's assets as collateral for a loan, covering all of the borrower's assets rather than specific assets.

Disbursement of Funds

Disbursement of funds refers to the payment of money from a fund or account, typically for specific purposes or expenses.