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Receivable Transactions and Differences in Inventory

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What are two methods of recording accounts receivable transactions when a cash discount situation is involved? Which is more theoretically correct? Which is used in practice more of the time? Why?

What is the difference between a perpetual inventory and a physical inventory? If a company maintains a perpetual inventory, should its physical inventory at any date be equal to the amount indicated by the perpetual inventory records? Why?

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The expert examines receivable transactions and differences in inventory.

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Answer:
1. What are two methods of recording accounts receivable transactions when a cash discount situation is involved? Which is more theoretically correct? Which is used in practice more of the time? Why?

The two methods of recording accounts receivable transactions when a cash discount situation is involved are gross method of recording accounts receivable transactions when a cash discount situation is involved and the net method. The gross method records the transaction when the discount is taken by the customers whereas the net method records when the discount is not taken by the customer. Here the gross method records the revenue at the gross amount of sale and records the discount whenever the customer takes the discount. The net method ...

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Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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