A sole trader receives a cash discount from a supplier for prompt payment. In the financial statements, this discount is normally treated as:
Correct answer: A. Other income
- A. Other income
- B. A capital receipt
- C. A non-current liability
- D. An increase in trade receivables
Explanation
A discount received reduces the cost of settling a trade payable and is generally recognised as income or a reduction of purchase cost, depending on the accounting presentation. It does not create a receivable or a liability.
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About Financial Statements of Sole Traders
Sole trader statements calculate revenue, cost of sales, gross profit, operating expenses and net profit, then present assets, liabilities and owner’s capital in the statement of financial position. Adjustments for closing inventory, accruals, prepayments, depreciation, bad debts, drawings and additional capital connect the two statements.
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