 Hello in this lecture we will define gross method according to fundamental accounting principles while 22nd edition the definition of gross method is method of recording purchases at the full invoice price without deducting any cash discount. So we're thinking about the gross method in terms of purchasing inventory recording that inventory at the full price not taking account of the discount at the time we purchase it taking account of the discount if we pay within the discounted time period for example where their owner over here were purchasing inventory in case of ink in this case cost 6500 we have the terms up here from the vendor this means 2% discount if we pay within 10 days otherwise we're going to pay within 30 days if we didn't have this discount the 2% then we would probably try to pay within the 30 days in order to pay as late as possible because of the time value of money given the discount the question is do we plan on paying within the 10 days or do we plan on paying after the 30 days how should we record the 6500 when we actually receive the goods should we report it at the 6500 or should we report it at the 6500 less the 2% discount if we're looking at the gross method we are going to put it on at the full price meaning we'll put it on the books at the 6500 not taking the 2% discount at the time we put it on the books this is the method that most textbooks will often use when discussing the cash discount then if we happen to pay within that 10 day time period we will account for the discount at the time of payment therefore when we put this inventory on the books we're going to debit the inventory 6500 that we purchased we're going to credit the accounts payable the iou for the 6500 if we pay after the 10 days but before the 30 days then the second transaction will be straightforward we're just going to pay the cash out and reduce the payable for that 6500 if however we pay within 10 days then we are going to have to account for that 2% discount meaning the cash that we pay will not be 6500 it'll be 6500 less the 2% discount that we will pay off we will have to take the full 6500 off the books out of accounts payable and then we'll have to account for that discount by decreasing the inventory the assets by that discount because we have put the asset on the books at 6500 it really needs to be on the books at the 6500 less the discount so really what we're talking about here with this method is what will the assumption be are we assuming that we are going to take the discount and pay within the 10 days in which case it might be best for us to put it on the books net of the discount or the growth method the growth method saying that we plan on paying after the 10 days but before the 30 days meaning we're going to put it on the books at the time of purchase at the full price