Characteristic of Cash Discount Allowed

Characteristic of Cash Discount Allowed

Cash discounted is allowed by the company to motivate customer for early payment.

Important Characteristics of Cash Discount

Some important characteristics of cash discount allowed are discussed below;

1.   Time of Recovery:

Cash discount is offered to customer on early payment or recovery of due amount from customers. This discount is recorded in the books of accounts at the time of recovery of due payment from the customers.

2.   Working Capital Management:

Cash discount facilities working capital management. Organization needs cash to finance the operations of the business. Discount allowed work as motivating factor for early recovery.

3.   Cash discount Allowed is Expense:

Cash discount allowed is treated as expense in the business. Thus discount allowed is debited in the books of account.

4.   Accounting Treatment of Cash Discount:

Cash discount is debited being expenses, while debtor is reduced by crediting. This accounting treatment has been explained with a simple example below

5.   Examples of Discount allowed:

Accounting treatment of discount allowed has been the following example. Sales made to Raheel amounting 120,000 and 10% discount is allowed on early payment, and then the following journal entry shall be passed by company.

Date	Particulars	Dr	Cr
	Raheel Khan A/c	120,000
	Sales		120,000

Date	Particulars	Dr	Cr
	Discount Allowed A/c	12,000
	Raheel Khan A/c		12,000

 6.   List of Characteristics of Discount allowed

a)    It is given to customers.

b)   It is a business expense.

c)    It improves the working capital of company.

d)   It is quite different from trade discount.