The two stages of accounting for a purchase discount using the gross method are:
- 2) the purchase is first recorded at full cost
- 4) the inventory account is later reduced if payment is made within the discount period
What is a purchase discount?
This refers to the cash discount which is a reduction in the price of a good if the buyer pays for it within the allowable period.
It also means an incentive that the seller gives to the buyer in hopes that the buyer will pay for the purchase in full before the actual due date.
Hence, the two stages of accounting for a purchase discount using the gross method are the purchase is first recorded at full cost and inventory account is later reduced if payment is made within the discount period.
Therefore, Option 2 & 4 is correct.
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