level: Discounts
Questions and Answers List
level questions: Discounts
| Question | Answer |
|---|---|
| How are trade discounts treated in the accounts? | The discount is deducted at the point of sale, that is, the net amount is recorded in the accounts. |
| How are settlement discounts (discounts received) treated in the accounts? | The discount is noted in a memorandum in the cash book when the payment is made. It is then recorded as: Dr. Payables (discount amount) Cr. Discounts received The discounts received is later netted against the purchase expenses to reduce cost of sales. |
| When a cash/settlement discount is received, how is this transaction recorded? | They are treated as "other income" for the period. |
| What is a Discounts Received Account for? | For recording cash/settlement discounts received from suppliers on purchases. It is not for trade discounts. |
| How are trade discounts recorded? | The amount is deducted from the original sales price, when recording the purchase. |
| What is a trade discount? | A reduction in the amount required from a customer. |
| What balance should the discounts received account have? | A credit balance |