BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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On purchase of goods for cash
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On sale of goods
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On purchase of goods on credit
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Payment receiving in cash before time
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Detailed explanation-1: -Cash discounts refer to an incentive that a seller offers to a buyer in return for paying a bill before the scheduled due date. In a cash discount, the seller will usually reduce the amount that the buyer owes by either a small percentage or a set dollar amount.
Detailed explanation-2: -The time a customer is given to pay the invoice and receive the discount before the deadline. The percentage amount that can be deducted from the total invoice amount.
Detailed explanation-3: -An early payment discount is one form of trade finance in which a buyer pays less than the full invoice amount due by paying the supplier earlier than the invoice maturity date. An early payment discount is also commonly referred to as a cash discount or prompt payment discount.
Detailed explanation-4: -In accounting, there are two different ways that cash discounts can be recorded in the books: the net method and the gross method. The net method treats sales revenue as the net amount after the given discount, and any discounts that the buyer doesn’t take are recorded as interest revenue.
Detailed explanation-5: -Thus, cash discount received and allowed is recorded in the journal proper.