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, Iâ€™ve got a question about this recent balance sheet.
Suzie: Sure, whatâ€™s your question?
Sergio: Well, as you know, Iâ€™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: Thatâ€™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: Thatâ€™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: Thatâ€™s right. I canâ€™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. Letâ€™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 Alonzoâ€™s request?