Intermediate Accounting 14th Edition

Published by Wiley
ISBN 10: 0470587237
ISBN 13: 978-0-47058-723-2

Chapter 8 - Valuation of Inventories: A Cost-Basis Approach - Concepts for Analysis - Instructions - Page 485: CA8-4b

Answer

Cost of goods sold should only be reduced when the company successfully sells the inventory which has had its cost reduced by the cash discount. Therefore, cash discounts should not be classified as a reduction of cost of goods sold for the period when the payments are executed.

Work Step by Step

Moreover, for appropriate matching of discount to the respective purchase, the discount can only be recognized when the purchase has been successfully completed no when payment has been rendered.
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