BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Trade discount is credited to discount received account
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Trade discount is deducted from the invoice price and recorded at net value
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None of the above
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Any of (a) and (b)
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Detailed explanation-1: -Trade Discount is credited to Discount Received Account.
Detailed explanation-2: -Accounting of trade discount Net price = List price – Trade discount. Therefore, trade discounts are not recorded in the books of accounts. However, on the other hand, cash discounts are recorded in the books of accounts. Cash discounts are usually allowed on the invoice price of the goods.
Detailed explanation-3: -Trade Discount is allowed as a general discount to all the customers to promote the sales. Trade discount is allowed on the list price and sales is done on the basis of net price i.e. list price minus trade discount. Hence trade discount is not recorded in books of account.
Detailed explanation-4: -Trade discount is not recorded as the amount payable is calculated after deducting the discount from the invoice itself.
Detailed explanation-5: -When the buyer receives a discount, this is recorded as a reduction in the expense (or asset) associated with the purchase, or in a separate account that tracks discounts.