Looking at the below invoice terms:

1/15, n/60

Please state whether the below statement is true or false IN ITS ENTIRETY:

The above invoice terms mean that the purchasing company gets a 1% discount if they pay the invoice within 15 days of the invoice date, and the net balance (assuming no discount is taken) is due within 60 days of the invoice date. Additionally, the invoice terms would be read as: "one fifteen, net sixty". Lastly, if the company was using the GROSS method to account for this, it would record the full purchase price amount as a debit to Inventory, but under the NET method, it would only record 99% of the original purchase price to the inventory account.

Question

Looking at the below invoice terms:

1/15, n/60

Please state whether the below statement is true or false IN ITS ENTIRETY:

The above invoice terms mean that the purchasing company gets a 1% discount if they pay the invoice within 15 days of the invoice date, and the net balance (assuming no discount is taken) is due within 60 days of the invoice date. Additionally, the invoice terms would be read as: "one fifteen, net sixty". Lastly, if the company was using the GROSS method to account for this, it would record the full purchase price amount as a debit to Inventory, but under the NET method, it would only record 99% of the original purchase price to the inventory account.

BlackTom AI · Accepted Answer

Begin by parsing the given terms and the statements piece by piece. The terms 1/15, n/60 mean a 1% discount is available if payment is made within 15 days of the invoice date, and the net (full) amount is due within 60 days if the discount is not taken. This supports the first clause of the statement.

Next, the phrase “one fifteen, net sixty” is a common verbal rendering of 1/15, n/60, so that interpretation is also correct.

Regarding the accounting methods: under the gross method, a purchase is recorded at the gross (invoice) price initially, so the Inventory account would be debited for the full purchase price and Accounts Payable credited. If the discount is taken later, a separate Purchase Discounts account (a contra-expense) may be involved to reflect the discount, but the initial entry is indeed at gross price.

Under the net method, the company records the purchase at the net amount (invoice price minus the discount). If the discount is 1%, the initial Inventory debit would be for 99% of the original price, with the remaining 1% adjustment recognized as a Purchase Discounts or similar account depending on the exact entry structure. This aligns with the idea that Inventory would be recorded at 99% of the original price under the net method, assuming the discount is expected to be taken and the entity uses the net method for recording purchases.

If we examine potential edge cases: some contexts distinguish between recording at gross price and recognizing the discount later (gross method), versus recording at the net price upfront (net method). The statement’s assertions about both methods reflecting the discount behavior and the verbal reading are consistent with standard accounting treatment for purchase discounts under these methods.

Putting it together, there are no stated inconsistencies in the claim as given: the discount terms correspond to a 1% discount within 15 days, the verbal reading is correct, and the gross vs net inventory recording aligns with conventional practice. Therefore, the entire statement is true.

In summary, option True is supported by: (a) correct interpretation of 1/15, n/60 terms, (b) acceptance of the common verbal form “one fifteen, net sixty,” and (c) accurate description of how gross and net methods affect the initial Inventory recording for purchases with a purchase discount.

W25 ACCT D001A 01Y Finan Accountng I Final Exam - DeAnza

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