Cash Discount Flashcards
What is a cash discount?
A cash discount is a discount given to customers who buy on credit, in order to encourage the customers to pay earlier.
Why is a cash discount given?
A business offers cash discount to encourage its credit customers to settle their debts within a shorter time period than the credit period given.
How is cash discount calculated?
The cash discount is a reduction in the invoiced amount which is the amount owed. The invoiced amount less cash discount is the amount to be paid.
When is cash discount given?
Cash discount arises upon receipt of the amount owed by a credit customer or upon payment of the amount owed to a credit supplier.
Is cash discount recorded in the ledger account?
Cash discount is recorded in the ledger account. The cash discount given to credit customers is recorded in the discount allowed account. The cash discount received from credit suppliers is recorded in the discount received account.
What is discount allowed?
It is a cash discount given to credit customers / trade receivables. Discount allowed is an expense since the business suffers a loss from receiving a reduced amount from the credit customer.
What is discount received?
It is a cash discount received from a credit supplier. Discount received is an income since the business enjoys the benefit of a reduction in liability.
What is the journal / double entry for a cash discount given to credit customer?
Dr Discount allowed (increase expense)
Cr Trade receivable (decrease asset)
What is the journal / double entry for a cash discount receivable from credit supplier?
Dr Trade payable (decrease liability)
Cr Discount received
