Purchases equal the invoice amount:
A) Plus freight-in, plus discounts lost.
B) Less purchase returns, plus purchase allowances.
C) Plus freight-in, less purchase discounts.
D) Plus discounts, less purchase returns.

Question

Quizplus · Accepted Answer

Purchases are typically recorded at their invoice amount, which includes both the cost of the goods purchased and any associated freight-in charges. However, if the buyer is offered a discount for paying the invoice early and chooses not to take it, that discount is considered lost and must be added to the invoice amount. Conversely, if the buyer is able to negotiate a purchase allowance (i.e. a reduction in the price of the goods purchased) then this amount is deducted from the invoice amount. Additionally, any goods that are returned to the supplier after the initial purchase must be deducted from the total purchase amount. Therefore, the correct formula for calculating purchases is: Purchases = Invoice Amount + Freight-In - Purchase Discounts - Purchase Returns + Purchase Allowances.

Purchases Equal the Invoice Amount