What is the net method of recording purchases?
A)A purchase is originally recorded at its full amount with any cash discount taken recorded as a reduction to inventory at a later date.
B)A purchase is originally recorded at its full amount less any available cash discount.
C)A purchase is originally recorded at its full amount plus any available cash discount.
D)A purchase is originally recorded at its full amount with any cash discount taken recorded as an increase to inventory at a later date.
E)A purchase is originally recorded to a purchase discounts lost account with any cash discount taken recorded as a reduction to inventory at a later date.

Question

Quizplus · Accepted Answer

The net method of recording purchases involves recording the purchase at its full amount less any available cash discount. This method is preferred over the gross method (option A) because it provides a more accurate picture of the actual cost of inventory. Option C is incorrect because it suggests adding the cash discount, which is not the case. Option D is incorrect because it suggests increasing inventory for cash discounts taken, which is also not accurate. Option E is incorrect because it suggests recording cash discounts taken as a reduction to inventory, which is not the case under the net method.

What Is the Net Method of Recording Purchases