Using the gross method, purchase discounts lost are
[ Select ]
Included as a reduction to purchase returns.
Included in inventory purchased.
Deducted from discount income.
Added to accounts payable.
No discounts are allowed under the gross method

Question

Using the gross method, purchase discounts lost are 
[ Select ]
Included as a reduction to purchase returns.
Included in inventory purchased.
Deducted from discount income.
Added to accounts payable.
No discounts are allowed under the gross method

BlackTom AI · Accepted Answer

First, let’s restate the scenario to ensure clarity: under the gross method for purchase discounts, we record the amount of the discount as part of the cost of the inventory and any discount lost affects the inventory value rather than other accounts.
Option 1: Included as a reduction to purchase returns. This is incorrect because discounts lost are not reductions to purchase returns; purchase returns are reductions of the cost of goods purchased, whereas discounts lost relate to the cash discount opportunity on purchases and are tied to inventory cost, not returns.
Option 2: Included in inventory purchased. This is the correct treatment under the gross method: the discount not taken is added to the cost of the inventory purchased, increasing the recorded cost to reflect the higher amount paid if the discount is not earned.
Option 3: Deducted from discount income. This would imply that discounts lost reduce any discount income, which does not align with how the gross method operates; the effect is on inventory cost rather than income from discounts.
Option 4: Added to accounts payable. While accounts payable initially records the gross amount owed, the gross method does not separately add the discount lost to accounts payable; the ultimate carrying amount of inventory reflects the gross purchase price, and the discount lost increases inventory cost rather than AP liability separately.
Option 5: No discounts are allowed under the gross method. This is false; the gross method does allow taking discounts when available; the distinguishing feature is that discounts not taken are added to the cost of inventory, not ignored.
In summary, the key idea is that under the gross method, any discount not taken is treated by increasing the cost basis of the inventory purchased, rather than reducing income or adjusting other accounts in the manner described by the other options.

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

Using the gross method, purchase discounts lost are [ Select ] Included as a reduction to purchase returns. Included in inventory purchased. Deducted from discount income. Added to accounts payable. No discounts are allowed under the gross method

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