Chpt 4

Question 1

Difference between trade and cash discount

Answer 1

• Trade discount is a reduction to the list price of goods while cash discount is a reduction to the invoice price of goods.

• Trade discount is given to encourage bulk purchase, customer patronage and customer loyalty, while cash discount is encourage customers to pay early and promptly within a specific time.

• Trade discount is not recorded in the ledger while cash discount is recorded in the ledger as discount allowed or discount received.

Question 2

Difference between discount allowed and discount received

Answer 2

• Discount allowed is given by the business to credit customers when credit customers pay early, while discount received is given my credit suppliers to the business when the business pay early.

• Discount allowed is recorded as an expense and will decrease profit, while discount received is recorded as an income and will increase profit.