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Question

Cash discount allowed to a debtor should be credited to the _________ account.


A
Discount 
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B
Customer's 
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C
Sales 
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D
Cash 
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Solution

The correct option is B Customer's 
Discount are of two types i.e trade discount and cash discount. Cash discount are allowed to the customer to speed up the collection of cash from the customers. To speed up the cash collection, company may allow a cash discount. Cash discount is a loss to the company and should be debited to the discount account by giving credit to customer account.
For example, Good worth Rs.5000 is sold to Ramesh with a credit period of 30 days with a cash discount clause of 1% if the payment is done within 15 days. Ramesh has settled the full amount in 14 days. The accounting entry will be as under:

Cash A/c          Dr.      Rs.4950
Discount A/c    Dr.      Rs.50
   To Ramesh A/c                          Rs.5000

Fundamentals of Accounting and Auditing

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