How are purchase discounts and purchase returns recorded by a company using the periodic inventory system?
A)As a direct reduction to the Purchases account
B)In contra accounts to the Purchases account
C)As operating expenses
D)As miscellaneous expenses

Question

Quizplus · Accepted Answer

Purchase discounts and purchase returns are recorded using contra accounts to the Purchases account in the periodic inventory system. The Purchase Discounts account is used to record any discounts received from suppliers for early payment of invoices, while the Purchase Returns and Allowances account is used to record any goods returned to suppliers or price adjustments received from suppliers. These contra accounts are subtracted from the Purchases account to arrive at net purchases, which is then used to calculate the cost of goods sold.

How Are Purchase Discounts and Purchase Returns Recorded by a Company