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ACCA Applied Knowledge · Financial Accounting · Sales and purchases

Under the usual bookkeeping approach, how should a prompt payment (settlement) discount that a business takes from a supplier on paying an invoice be recorded in its ledgers?

Debit Trade payables and credit Discounts received. Taking a settlement discount reduces the amount owed to the supplier without any cash paid, and the saving is recognised as income in the discounts received account, not as a purchase return.

  1. ADebit Trade payables; credit Discounts receivedCorrect
  2. BDebit Discounts received; credit Trade payables
  3. CDebit Trade payables; credit Purchase returns
  4. DDebit Discounts allowed; credit Trade payables

Explanation

Taking a discount from a supplier settles part of the liability without cash, so Trade payables is debited. The credit goes to Discounts received, which is income in profit or loss. Option C confuses a discount with a return of goods, and option D uses the account for discounts given to customers.

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