The Encore Video Store Co. is owned and operated by Sergio Alonzo. The following

Question

The Encore Video Store Co. is owned and operated by Sergio Alonzo. The following
is an excerpt from a conversation between Sergio Alonzo and Suzie
Engel, the chief accountant for The Encore Video Store.
Sergio: Suzie, I%u2019ve got a question about this recent balance sheet.
Suzie: Sure, what%u2019s your question?
Sergio: Well, as you know, I%u2019m applying for a bank loan to finance our new store
in Cherokee, and I noticed that the accounts payable are listed as $120,000.
Suzie: That%u2019s right. Approximately $100,000 of that represents amounts due our
suppliers, and the remainder is miscellaneous payables to creditors for utilities,
office equipment, supplies, etc.
Sergio: That%u2019s what I thought. But as you know, we normally receive a 2% discount
from our suppliers for earlier payment, and we always try to take the
discount.
Suzie: That%u2019s right. I can%u2019t remember the last time we missed a discount.
Sergio: Well, in that case, it seems to me the accounts payable should be listed
minus the 2% discount. Let%u2019s list the accounts payable due suppliers as $98,000,
rather than $100,000. Every little bit helps. You never know. It might make the
difference between getting the loan and not.
How would you respond to Sergio Alonzo%u2019s request?

Explanation / Answer

Sergio Alonzo is not correct when we represent the Accounts Payable we aren't sure that we will avail the discount so it should be represented as the entire amount of $120000 and if we are able to avail the discount we can adjust it accordingly at the later stage.

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