PRC-1 · Chapter 2 · Question 71 of 100
What is the key difference between a trade discount and a settlement (cash) discount in terms of books of prime entry?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Trade discounts are deducted before entry into day books, while settlement discounts are formally recorded in the cash book.
Explanation
Trade discounts lower the initial invoice value and are not distinctly recorded. Settlement discounts are recognized as an expense or income when payment occurs and are recorded in the memorandum columns of the cash book.
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