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Chapter © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11 Appendix: The Net-Price Method of Recording Purchases
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Learning Objective © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1 Describe the net-price method of recording purchases.
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Gross-Price Method Purchases are recorded at the gross amount, regardless of available cash discounts Net-Price Method Purchases are recorded at the net amount, assuming all available cash discounts will be taken Recording Purchases
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Learning Objective © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2 Record purchases and cash payments using the net-price method.
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. EXAMPLE : Purchased $100 of merchandise on account, with credit terms of 2/10, n/30. Comparing Methods of Recording Purchases
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Purchases Accounts Payable Purchased merchandise on account 100 00 The gross-price method records the purchase as $100. The discount, if taken, will be recorded at the time of payment. Gross-Price Method
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Purchases Accounts Payable Purchased merchandise on account 98 00 The net-price method records the purchase at the net amount of $98. The assumption is made that ALL discounts will be taken. Net Price Method
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. EXAMPLE : Payment is made within the discount period. Comparing Methods of Recording Purchases
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Accounts Payable Cash Purchases Discounts 100 00 98 00 The $2 discount is credited to Purchases Discounts. 2 00 Paid on account Gross-Price Method
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Accounts Payable Cash 98 00 The $2 discount is not recorded. Paid on account Net-Price Method
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. EXAMPLE : Payment is made after the discount period. Comparing Methods of Recording Purchases
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Accounts Payable Cash 100 00 If the discount period is missed, no record is made of the discount. Paid on account Gross-Price Method
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Accounts Payable Purchases Discounts Lost 98 00 100 00 The $2 discount is recorded as “lost.” Paid on account Cash 2 00 Net-Price Method
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. A temporary owner’s equity account used to record cash discounts lost on purchases. Purchases Discounts Lost DR.CR. + — The balance represents a finance charge for postponing the payment for merchandise.
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