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

Illustration 2 – Settlement discount – purchaser perspective 

 

An entity sold goods to a customer on credit at a price of $200, and the 

customer was offered 3% settlement discount for settlement within ten 

days of the invoice date. 

How should this be accounted for in the books of the purchaser? 

State the net cost of the goods purchased. 

 

 

 

---

 

Returns, discounts and sales tax 

78

 

KAPLAN PUBLISHING

 

 

Solution to Illustration 2 

 

The purchaser would initially record the purchase of goods as follows: 

 $ 

Debit Purchases 

200 

Credit Payables 

200 

If the invoice was paid after the early settlement period, the full amount 

would be payable to the supplier, with the payment recorded as follows: 

 $ 

Debit Payables 

200 

Credit Bank 

200 

 

Alternatively, if the invoice was paid within the 10-day early settlement 

period, $194 would be paid to the supplier in full settlement of the 

amount due, and discount received for $6 would be recorded as 

follows: 

 $ 

Debit Payables 

200 

Credit Bank 

194 

Credit Discount received 

6 

The net cost of the goods purchased is $194 ($200 – $6).