Accounting for Merchandising Businesses – Discussion

The Encore Video Store Co. is owned and operated by Sergio Alonzo. The following is an excerpt from a conversation between Sergio Alonzo and Suzie Engel, the chief accountant for The EncoreVideo Store:

Sergio: Suzie, I’ve got a question about this recent balance sheet.

Suzie: Sure, what’s your question?

Sergio: Well, as you know, I’m applying for a bank loan to finance our new store in Cherokee, and I noticed that the accounts payable are listed as $120,000.

Suzie: That’s right. Approximately $100,000 of that represents amounts due our suppliers, and the remainder is miscellaneous payables to creditors for utilities, office equipment, supplies, etc.

Sergio: 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.

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

Sergio: 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 $98,000, rather than $100,000. Every little bit helps. You never know. It might make the difference between getting the loan and not.

How would you respond to Sergio Alonzo’s request?

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