7. Which of the following statements regarding the gross and net methods for trade accounts payable is not true? a. the net method overstates accounts payable at the end of the accounting period b. the net method highlights management inefficiency because purchase discounts lost are recorded whenever an invoice is paid after the cash discount period has expired c. the gross method is more widely used in practice d. the net method more accurately measures liquidity
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
7. Which of the following statements regarding the gross and net methods for trade accounts payable is not true?
a. the net method overstates accounts payable at the end of the accounting period
b. the net method highlights management inefficiency because purchase discounts lost are
recorded whenever an invoice is paid after the cash discount period has expired
c. the gross method is more widely used in practice
d. the net method more accurately measures liquidity
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