Acca financial Accounting (FA) Study Text ac ca (FA)

Returns, discounts and sales tax 

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KAPLAN PUBLISHING

 

 

Test your understanding 2 

 

Oliver sold goods with a list price of $1,000 to Sam on a cash basis and 

allowed her a trade discount of 10%. 

Show how the above should be recorded in both the books of 

Oliver and Sam. 

Settlement discounts 

This type of discount encourages credit customers to pay for goods and 

services purchased quicker than they may otherwise do. If you pay for the 

goods within a set time limit, then you will receive a percentage discount. This 

may be referred to as a 'cash discount', or as 'early settlement discount' or as 

'prompt payment discount'. For example, a cash discount of 3% may be offered 

to any customers who pay within 10 days, when the normal terms of business 

are 30 days credit. 

Whilst offering this discount may encourage earlier receipt of cash from credit 

customers, there is still a loss of revenue to the entity which offers such a 

discount.