The entry to record payment of a voucher for an invoice after the discount period under the gross method will include:
A)a debit to Vouchers Payable.
B)a credit to Purchase Discounts.
C)a debit to Discounts Lost.
D)None of these are correct.

Question

Quizplus · Accepted Answer

CUnder the gross method, the initial purchase is recorded at its gross amount. If payment is made after the discount period, the entry to record the payment would include a debit to Vouchers Payable for the full amount of the invoice, reflecting the reduction of the liability. Since the payment is made after the discount period, the company cannot take advantage of the purchase discount, and thus, it records the amount of the discount it failed to take as an expense, debiting Discounts Lost. There is no credit to Purchase Discounts because this account is used under the net method or when discounts are actually taken, not lost.

The Entry to Record Payment of a Voucher for an Invoice