Purchase discount - accounting

User Generated

njevtug5

Business Finance

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

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Explanation & Answer

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.


Anonymous
I was struggling with this subject, and this helped me a ton!

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