Margo, Inc. purchased goods from Fairlane Industries. If Margo's accounts show a Purchase Discount account related to this purchase, which of the following is true?

Question

Quizplus · Accepted Answer

The presence of a Purchase Discount account indicates that Margo uses the gross method and a periodic inventory system, which means that discounts are not recorded at the time of purchase but instead are recognized when payment is made. Choice A is incorrect because purchase discounts lost would be reflected in a separate account, not the Purchase Discount account. Choice C is also incorrect because there is no indication that Margo uses discount rates as a measure of management efficiency.