How is a trade discount shown on an invoice normally treated in double-entry records?
Correct answer: B. It is deducted before recording the net amount
- A. It is recorded separately as an expense
- B. It is deducted before recording the net amount
- C. It is credited to the trade discount account
- D. It is entered in the cash book when allowed
Explanation
Trade discount is deducted from the list price, and only the net invoice amount is recorded in the accounting books. It is not treated like cash discount, which is recorded when payment is made.
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About Double Entry and Books of Prime Entry
Double entry records every transaction with equal debit and credit entries, based on the accounting equation and the classification of assets, liabilities, capital, income and expenses. Books of prime entry include the sales, purchases, returns and cash books, journal, and source documents used before transactions are posted to ledger accounts.
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