Which of the following statements regarding the gross and net methods for trade accounts payable is not true?
A)The net method overstates accounts payable at the end of the accounting period.
B)The net method highlights management inefficiency because purchase discounts lost are recorded whenever an invoice is paid after the cash discount period has expired.
C)The gross method is more widely used in practice.
D)The net method more accurately measures liquidity.

Question

Quizplus · Accepted Answer

The statement "The net method overstates accounts payable at the end of the accounting period" is not true. In fact, the gross method overstates accounts payable because it includes the entire amount of trade accounts payable, even if discounts are taken. The net method only includes the amount of trade accounts payable that is unpaid after taking discounts. Therefore, the net method more accurately reflects the actual amount of accounts payable that will be paid.

Which of the Following Statements Regarding the Gross and Net