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Topic: Current Assets - A/P Discount (

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lululene
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Joined: 26 Mar 2010
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Posted: 13 Apr 2010 at 13:19 \| IP Logged

Rabb Co. records its purchases at gross amounts but wishes to change to recording purchases net of

purchase discounts. Discounts available on purchases recorded from last October to this September 30

totaled $2,000. Of this amount, $200 is still available in the accounts payable balance. The balances in

Rabb's accounts as of and for the current year ended September 30 before conversion are:

Purchases $100,000

Purchase discounts taken 800

Accounts payable 30,000

What is Rabb's current year accounts payable balance as of September 30 after the conversion?

nm$29,800

nm$29,200

nm$28,800

nm$28,200

Can anybody help me to understand what is the relationship among these four numbers: 200, 2000 ,30,000 and 800? I am lost here.

mits07
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Posted: 13 Apr 2010 at 17:09 \| IP Logged

Purchase discount and purchases are part of your COGS.
A/P is recorded net of any discount. 30,000 - 200 discount = 29,800

lululene
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Posted: 13 Apr 2010 at 17:35 \| IP Logged

The part I don't unstand is how each account works. If $2,000 represnts the total discount available for the purchase made in the year and $200 is what is left, the discount taken should have been $1,800. Why the discount taken is only $800?

mits07
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Posted: 13 Apr 2010 at 18:11 \| IP Logged

total discount balance was 2,000 but the ending balance for discount is 200 on A/P. that means, they already took 1,800 discount before hand. Remaining balance is 200. Do T-account to see the entry, sometimes that helps me.

lululene
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Posted: 13 Apr 2010 at 18:16 \| IP Logged

Thanks mits07. That was what I thought. If you read the question about the information before the conversion, it says "Purchase discounts taken 800". I just can't understand why this $800 is given and why it is contradictory to $1,800 which is what we get from the calculation.

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