Question

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 to suppliers as

$314,500 rather than $320,000. Every little bit helps. You never know. It might make

the difference between getting and not getting the loan.

Please discuss how would you respond to Cam Pfeifer's request.

Answer 1