Chapter 4 double entry recording

Question 1

Define trade discount

Answer 1

Trade discount is a reduction to the list price of goods

Question 2

State the purpose of trade discount

Answer 2

Trade discount is given to encourage bulk purchase, customer patronage, customer loyalty

Question 3

Define cash discount

Answer 3

Cash discount is a reduction to the invoice price of goods

Question 4

State the purpose of cash discount

Answer 4

Cash discount is given to encourage customers to pay early and promptly within a specified time.

Question 5

Explain the difference between trade and cash discount

Answer 5

-Trade discount is a reduction to the list price of goods and is given at the point of sale while cash discount is a reduction to the invoice price of goods and is given at the point of payment.

-Trade discount is given to encourage bulk purchase, customer patronage and customer loyalty while cash discount is given to encourage customers to pay early and promptly within a specified time.

-Trade discount is not recorded in the ledger while cash discount is recorded in the ledger as discount allowed or discount received.