Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 4: 4-6DQ (page 205)

Distinguish between cash discounts and trade discounts for purchases. Is the amount of a trade discount on purchased merchandise recorded in the accounts?

Short Answer

Expert verified

The following are the basis of difference:

  1. Time of discount.
  2. Purpose of discount.
  3. Recording in the books of accounts.

Step by step solution

01

Definition of Trade Discount

The reduced price negotiated between the buyer and seller is known as a trade discount. Such a discount is generally given to increase the market share by maintaining a relationship with the buyer.

02

Differences between cash discount and trade discount

  1. Cash discount is provided at the time of payment, while a trade discount is provided at order placement.
  2. Cash discount is provided to motivate buyers to make earlier payments, while a trade discount is provided for maintaining a relationship with the buyer.
  3. Cash discount is reported in the books of account while trade discount is not reported.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Buyers negotiate purchase contracts with suppliers. What type of shipping terms should a buyer attempt to negotiate to minimize freight-in costs?

What is the difference between the single-step and multiple-step income statement formats?

Refer to QS 4-8 and prepare journal entries to record each of the merchandising transactions assuming that the company records sales using the net method and a perpetual inventory system.

For each item below, indicate whether the statement describes a multiple-step income statement or a single-step income statement.

a. Multiple-step income statement b. Single-step income statement

1. Commonly reports detailed computations of net sales and other costs and expenses.

2. Statement limited to two main categories (revenues and expenses).

3. Reports gross profit as a separate line item.

4. Reports net income equal to income from operations adjusted for any nonoperating items.

Lopez Company reports unadjusted first-year merchandise sales of \(100,000 and cost of merchandise sales of \)30,000.

a. Compute gross profit (using the unadjusted numbers above).

b. The company expects future returns and allowances equal to 5% of sales and 5% of cost of sales.

1. Prepare the year-end adjusting entry to record the sales expected to be refunded.

2. Prepare the year-end adjusting entry to record the cost side of sales returns and allowances.

3. Recompute gross profit (using the adjusted numbers from parts 1 and 2).

c. Is Sales Refund Payable an asset, liability, or equity account?

d. Is Inventory Returns Estimated an asset, liability, or equity account?
See all solutions

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Read Explanation

Corporate Finance

Read Explanation

Financial Performance

Read Explanation

Change Management

Read Explanation

Business Case Studies

Read Explanation

Organizational Communication

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free