Purchase Returns and Allowances Decrease the Net Amount of Cash

question 125

True/False

Purchase returns and allowances decrease the net amount of cash that will be paid for the inventory,and so they should reduce the cost of the inventory as recorded in the Inventory account.

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Definitions:

Downsloping

describes a trend or curve that goes downward, often used in economics to describe demand curves where price decreases lead to an increase in quantity demanded.

Economic Profits

Profits exceeding the opportunity costs of a venture or investment, accounting for both explicit and implicit costs.

Normal Profits

The level of profit necessary to keep a firm in an industry, equating to the opportunity cost of capital and entrepreneurship.

Marginal Cost

The financial commitment needed for producing an extra unit of a good or service.