Question

An amount which is allowed for the prompt settlement of debt arising out of a sale within a specified time and calculated on a percentage basis is known as ___________________.

• A. Trade discount
• B. Special discount
• C. Cash discount
• D. None of the above

Answer 1

Answer: (C)

Cash discount

Discount can be classified as:

• Trade Discount
  
• Cash Discount
  

Trade discount is allowed to promote the sales. It is allowed on the list price of the product and only net price is recorded as sales.

Cash discount is allowed to speed up the cash collection from the customers to whom the credit sales is done. Cash discount is allowed to only those customers which are making the payment earlier than the specified credit period. It is allowed if the customer is making the payment within the specific period and calculated on a certain percentage basis.