Rabb Co. records its purchases at gross amounts but wishes
to change to recording purchases net of purchase discounts.
Discounts available on purchases recorded from October 1, year
1, to September 30, year 2, totaled $2,000. Of this amount, $200
is still available in the accounts payable balance. The balances in
Rabb’s accounts as of and for the year ended September 30, year
2, before conversion are

Purchases $100,000

Purchase discounts taken 800

Accounts payable 30,000

What is Rabb’s accounts payable balance as of September 30,
year 2, after the conversion?

(a) When purchases are recorded using the net method,
purchases and accounts payable are recorded at an amount net of
the cash discounts, and the failure to take advantage of a discount
is recorded in a Purchase Discounts Lost account. Therefore,
when Rabb changes to the net method, gross accounts payable
($30,000) must be adjusted down to the net amount. Since $200
of discounts are still available in the accounts payable balance, the
net accounts payable at 9/30/Y2 is $29,800 ($30,000 −$200).
The journal entry is
Purchase discounts lost 1,000
Purchase discounts 800
Accts. payable 200
Purchases 2,000