The credit balance that arises when a net loss on a purchase commitment is recognized should be
A)presented as a current liability.
B)subtracted from ending inventory.
C)presented as an appropriation of retained earnings.
D)presented in the income statement.

Question

Quizplus · Accepted Answer

The credit balance that arises when a net loss on a purchase commitment is recognized represents an obligation to pay the supplier for the difference between the contract price and the market price. Therefore, it should be presented as a current liability on the balance sheet until it is settled.

The Credit Balance That Arises When a Net Loss on a Purchase