A likely analytical procedure to test the accuracy of purchase discounts would be to compute the ratio of cash discounts earned to:
A)Accounts payable.
B)Notes payable.
C)Purchases.
D)Sales discounts.

Question

Quizplus · Accepted Answer

The best choice would be to compute the ratio of cash discounts earned to purchases. This is because purchase discounts are typically offered as an incentive for customers to pay their accounts payable quickly. Computing the ratio of cash discounts earned to purchases would help determine whether the company is accurately calculating the discounts and also provide insight into whether customers are taking advantage of the discounts offered. Comparing the cash discounts earned to accounts payable or notes payable would not provide as clear an indication of the accuracy of the purchase discounts, and sales discounts are a different type of discount altogether.

A Likely Analytical Procedure to Test the Accuracy of Purchase