Company A records purchase discounts as the author states. Company B records pur

Question

Company A records purchase discounts as the author states. Company B records purchase discounts as Other Income. Company B makes the journal entry Accounts Payable debit and Purchase Discounts Takes credit. Purchase Discounts Takes is put on the Income Statement as Other Income.

Discussion Questions:
Does the fact that the two companies record purchase discounts make any difference to a financial statement reader? A yes or no answer is insufficient; you have to explain why it does or does not make a difference. About 75 to 200 words are expected.

Explanation / Answer

The first section of an income statement reports a company's sales revenue, purchase discounts, sales returns and cost of goods sold. This information directly affects a company's gross and operating profit. A purchase discount is a small percentage discount a company offers to a buyer to induce early payment of goods sold on account.

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