The purchase of a machine on credit was recorded as a debit to Machinery, a debit to Discount on note payable, and a credit to Notes payable. Under IFRS, at the end of the accounting period, any unamortized debit balance in the discount account should be reported as a(n):
A) asset.
B) a direct reduction to the liability - without using a contra account.
C) expense.
D) liability.

Question

Quizplus · Accepted Answer

Under IFRS, the unamortized debit balance in the discount on note payable account should be reported as a direct reduction to the liability without using a contra account. This is because IFRS does not allow the use of contra accounts for the presentation of financial statements. Instead, the amount would be netted against the notes payable balance on the balance sheet, reducing the total liability amount. Therefore, choice B is the correct answer.

The Purchase of a Machine on Credit Was Recorded as a Debit