Purchase discount - accounting

timer Asked: May 15th, 2015
account_balance_wallet $5

Question Description

Purchases Discount:

a. is a contra-cost account

b. has a normal debit balance

c. decreases Net Income

d. All of the above.

I think it is D, but my study partner says it is something else

Tutor Answer

School: Duke University

The answer is c..Decreases net income.

Purchase discount  affects the selling price of an item thus reducing sales in relations to the discount rate offered.

Example  if a selling price of an item was marked at $10, then due to competition  a discount of 10% is offered, the item will be sold at $9 hence $1 discount.The seller will get $9 instead of $10 hence reductions of sales income thus decreasing net income.

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Good stuff. Would use again.

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