Reference no: EM131292231

Accounting for the sale of merchandise, purchase of merchandise, and accounting for freight and sales tax is important for a Merchandising business. In Merchandising businesses, there is a dual nature to the transactions. In this Discussion, you will look at merchandise shrinkage as well as the financial statements for a merchandising business.

This week’s Discussion focuses on Activity 4-2 located on page 169 of your textbook, which reads as follows:

The Laurel Co. is owned and operated by Paul Laurel. The following is an excerpt from a conversation between Paul Laurel and Maria Fuller, the chief accountant for The Laurel Co.:

Paul: Maria, I have a question about this recent balance sheet.

Maria: Sure, what’s your question?

Paul: Well, as you know, I’m applying for a bank loan to finance our new store in Clinton, and I noticed that the accounts payable are listed as $180,000.

Maria: That’s right. Approximately $150,000 of that represents amounts due our suppliers, and the remainder is miscellaneous payables to creditors for utilities, office equipment, supplies, etc.

Paul: 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.

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

Paul: 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 $147,000 rather than $150,000. Every little bit helps. You never know. It might make the difference between getting the loan and not.

How would you respond to Paul Laurel’s request?