Question

Using the gross method, purchase discounts lost are:

A. Included in purchases.

B. Added to accounts payable.

C. Included in interest expense.

D. Deducted from discount income.

Answer 1

Answer:

A. Included in purchases.

Explanation:

The adjustment of the purchase discount lost under the gross method is included in the purchase amount. If the payment is made within the discount period, then the discount is applicable otherwise not, if the payment is not made within the discount period.

The journal entry is shown below:

Purchase A/c Dr XXXXX

      To Account payable A/c XXXXX

(Being the goods are purchased on credit)