Explain about cash discount, Accounting Basics

Assignment Help:

Q. Explain about cash discount?

In a few industries credit terms include a cash discount of 1 percent to 3 percent to induce untimely payment of an amount due. A cash discount is a deduction from the invoice price that is able to be taken only if the invoice is paid within a specified time. A cash discount varies from a trade discount in that a cash discount is a deduction from the gross selling price for the prompt payment of an invoice. In contrast a trade discount is a inference from the list price to determine the gross selling price or invoice price. Sellers call a cash discount a sales discount as well as buyers calls it a purchase discount. Companies habitually state cash discount terms as follows

- 2/10, n/30-denotes a buyer who pays within 10 days following the invoice date may deduct a discount of 2 percent of the invoice price. If payment isn't made within the discount period, the entire invoice price is due 30 days from the invoice date.

- 2/EOM, n/60-denotes a buyer who pays by the end of the month of purchase may deduct a 2 percent discount from the invoice price. If payment isn't made within the discount period the entire invoice price is due 60 days from the invoice date.

- 2/10/EOM, n/60-denotes a buyer who pays by the 10th of the month following the month of purchase may deduct a 2 percent discount from the invoice price. If payment isn't made within the discount period the entire invoice price is due 60 days from the invoice date.

Sellers can't record the sales discount prior to they receive the payment since they don't know when the buyer will pay the invoice. A cash discount occupied by the buyer reduces the cash that the seller actually collects from the sale of the goods thus the seller must indicate this fact in its accounting records. The following entries illustrate how to record a sale and a subsequent sales discount.


Related Discussions:- Explain about cash discount

Accounting Assignment, Go to http://moneycentral.msn.com and look up the ...

Go to http://moneycentral.msn.com and look up the companies Lowe’s (symbol: LOW) and Home Depot (symbol: HD). To the left, you will see several different tabs. At the bottom, yo

What is operating revenues, Q. What is Operating revenues? Operating re...

Q. What is Operating revenues? Operating revenues are the revenues generated by the main activities of the business- generally the sale of products or services or both.

What is the use of balance sheet, Q. What is the use of balance sheet? ...

Q. What is the use of balance sheet? Balance sheet -- a statement of the financial position of a company at a single specific time(often at the close of business on last day

A store receives $400 cash after offering a chain, A store receives $400 ca...

A store receives $400 cash after offering a chain discount of 10/10/5 on a good. What was the list price? A. $492.20 B. $519.82 C. $533.33 D. $612.00

Trial balance, List of things to include in a trial balance before adjustme...

List of things to include in a trial balance before adjustments

Prepare a statement of funds, Q. Balance Sheets of a limited company are sh...

Q. Balance Sheets of a limited company are shown in figure as on 31 st December, 2008 and 2009: Taking into account the following additional information, give a statement

Asset or expense?, what does office stationery at year end classify as? ass...

what does office stationery at year end classify as? asset or expense?

Explain the business assets withdrawal, Explain the business assets Withdra...

Explain the business assets Withdrawal Withdrawal (Drawing) is removal of business assets for personal use by owner. This transaction decreases the asset taken and value of

Adjusting entries in the general journal, Adjusting entries in the general ...

Adjusting entries in the general journal Be sure to put down the words "Adjusting Entries" at the beginning of journal after the last entry of month. By placing these words at

Accounting concepts, implication of applying accounting concepts

implication of applying accounting concepts

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd