ACCA Applied Knowledge · Financial Accounting · Receivables and payables
A business is offered a 3% prompt payment discount on an invoice of $4,000 (excluding any sales tax) but pays after the discount period and pays in full. Which statement is correct?
No discount received is recorded and the payable is cleared by paying the full $4,000. The 3% discount is conditional on paying within the discount period, and that condition was not met.
- ANo discount received is recorded and the payable is cleared by paying $4,000Correct
- BDiscount received of $120 is recorded and cash paid is $4,000
- CDiscount received of $120 is recorded and cash paid is $3,880
- DDiscount allowed of $120 is recorded and cash paid is $4,000
Explanation
The discount is available only if payment is made within the stated period. Paying late means the full $4,000 is due, so the payable is cleared by $4,000 cash and no discount received arises. Recording $120 would understate the cost of purchases-related payment.
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