BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Cash discount is debited to discount allowed account
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Cash discount is reduced from the invoice price
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None of the above
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Any of (a) and (b)
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Detailed explanation-1: -Cash discount allowed is an expense for the business and every expense should be debited. Therefore cash discount allowed should be debited to Discount A/c.
Detailed explanation-2: -Important PointsA cash discount is a loss to the company and should be debited to the discount account by giving credit to the customer account.
Detailed explanation-3: -Cash discount allowed is recorded on the debit side of cash book.
Detailed explanation-4: -Cash discounts are recorded on the debit side of the cash book.
Detailed explanation-5: -For the seller who allows cash discount, it is a loss and hence it is debited and shown on the debit side of the cash book. For the person making payment, discount received is a gain because less payment is made and it is credited and shown on the credit side of the cash book.