Which of the following statements is not correct in relation to cash discount?

Cash discount is an allowance made by the person to receive cash from the payer for prompt payment

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Cash discount is an allowance in addition to the trade discount

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Cash discount is recorded in account books

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Cash discount is always allowed at a rate higher than the rate of trade discount

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Solution

The correct option is D Cash discount is always allowed at a rate higher than the rate of trade discount
Discount allowed can be classified as :-
1.Trade Discount
2.Cash Discount

Trade discount is generally allowed to promote the sale. It is allowed on the list price and only the net value is recorded in the books of account. Its generally allowed on a higher rate than the cash discount.

Cash discount is allowed to the customer to whom the goods were sold on credit. Cash discount is allowed to speed up the collection. If the customer pays the amount well before the normal credit period, a discount is allowed on a certain percentage. Cash discount is a having directly correlation with the cost of capital. If customer gets benefited than only he will go for the option of making the payment.

Cash discount is allowed with a very minimum percentage and is always lower than the trade discount.

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Similar questions

Q. Allowance made for prompt payment is called trade discount.

Q. ________is the book in which cash discount received and allowed is recorded.

Sold goods for cash of Rs 4000 on 10% Trade discount & 10% cash discount. Posting in discount account will be?

Record the following transactions in a journal.
(i) Received cash from Jaya for a bad debt written - Off last year Rs. 400.
(ii) Bought goods at the list price of Rs. 1,00,000 From Rani less 20% trade discount and 2% cash discount and paid 40% by cheque.
(iii) Sold goods ot Preeti at the list price of Rs. 2,00,000 less 20% trade discount and 2% cash discount and paid 50% by cheque.
(iv) Sold goods to Tanu for Rs.40,000, allowing her a trade discount of 5% and a cash discount of 10% she paid $\frac{1}{4} t h$ of the amount in cash at the time of purchase.

Q. Pass journal entries for the following:

2019
Jan. 6		Purchased goods from Henry for ₹ 50,000 on 10% trade discount and 4% cash discount and paid 60% amount by cheque.
Jan. 15		Bought goods from Amit for ₹ 2,00,000 at terms 5% cash discount and 20% trade discount. Paid 3/4th of the amount in cash at the time of purchase.
Jan. 18		Sold goods to Sherpa at the list price of ₹ 50,000 less 20% trade discount and 4% cash discount if the payment is made within 7 days. 75% payment is received by cheque on Jan. 23rd.
Jan. 25		Sold goods to Garima for ₹ 1,00,000, allowed her 20% trade discount and 5% cash discount if the payment is made within 15 days. She paid 1/4th of the amount by cheque on Feb. 5th and 60% of the remainder on Feb.15th in cash

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