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ACCA Applied Knowledge · Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

A trader pays $900 cash received from a customer, Mo, into the bank. Earlier, Mo had been invoiced $1,500. Mo then pays the remaining $600 balance by cheque and the business records a $50 settlement discount allowed on the final payment, so the cheque is $550 and the discount clears the $600. What is the double entry for the final settlement?

Debit Bank $550 and Discounts allowed $50, and credit Receivables $600. The customer's balance falls by the full $600, cash received increases the bank, and the settlement discount allowed is an expense, which is recorded as a debit.

  1. ADebit Bank $550; Debit Discounts allowed $50; Credit Receivables $600Correct
  2. BDebit Bank $600; Credit Receivables $550; Credit Discounts allowed $50
  3. CDebit Bank $550; Credit Discounts received $50; Credit Receivables $500
  4. DDebit Receivables $600; Credit Bank $550; Credit Discounts allowed $50

Explanation

Bank receives $550 (debit). The discount allowed is an expense (debit $50). Receivables are reduced by the full $600 (credit). Debits $600 equal credits $600. Option B reverses all the entries, and option D reverses the receivable and bank entries.

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