Chapter 6, Problem 6.5CP

Purchases discounts and accounts payable

Rustic Furniture Co. is owned and operated by Cam Pfeifer. The following is an excerpt from a conversation between Cam Pfeifer and Mitzi Wheeler, the chief accountant for Rustic Furniture Co.:

Cam: Mitzi, I’ve got a question about this recent balance sheet.

Mitzi: Sure, what’s your question?

Cam: Well, as you know, I’m applying for a bank loan to finance our new store In Garden Grove, and I noticed that the accounts payable are listed as $320,000.

Mitzi: That’s right. Approximately $275,030 of that represents amounts due our suppliers, and the remainder is miscellaneous payables to creditors for utilities, office equipment, supplies, etc.

Cam: That’s 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.

Mitzi: That’s right. I can’t remember the last time we missed a discount.

Cam: Well, in that case, it seems to me the accounts payable should be listed minus the 2% discount. Let’s list the accounts payable due suppliers as $310,500 rather than $320,000. Every little bit helps. You never know. It might make the difference between getting and not getting the loan.

How would you respond to Cam Pfeifer’s request?