CP 5-2 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 $275,000 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 $314,500, rather than $320,000. Every little bit helps. You never know. It might make the difference between getting the loan and not.
How would you respond to Cam Pfeifer’s request?