A Company Pays an Invoice Early and Takes 4% Off

question 119

Multiple Choice

A company pays an invoice early and takes 4% off of the original invoice price. The account to be credited for this amount under a perpetual inventory system is:

• A) Inventory.
• B) Accounts Payable.
• C) Purchases Discount.
• D) Cash.
• E) Purchases Returns.

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Definitions:

Delta

In finance, a measure of the sensitivity of an option's price to a change in the price of the underlying asset, indicating how much the price of the option is expected to move based on a $1 change in the underlying asset.

Underlying Asset

The financial asset upon which a derivative's price is based, such as stocks, bonds, commodities, or currencies.

Hedge Ratio

The proportion of a position which is hedged, representing a strategy to minimize the risk of adverse price movements in an asset.

Binomial Option Model

A numerical method used in finance to price options by breaking down the option’s life into discrete time intervals.