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Chapter 4
2.3 Accounting for discounts – settlement discounts
Settlement discounts are also referred to as ‘cash discounts’ or ‘prompt
payment discounts’. Note that whilst they may encourage a customer to pay
early, a seller cannot force a customer to pay for goods earlier than they
have previously agreed.
When offered a discount from a supplier – This type of discount is discount
received.
When offering a discount to a customer – This type of discount is discount
allowed.
When settlement discount is offered by a supplier, and early payment is made,
settlement discount is recorded at the point of payment. It is then accounted for as a
form of income in the statement of profit or loss.
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