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Bookkeeping › Books of Prime Entry

How does a settlement (cash) discount get recorded compared with a trade discount?

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Answer

A settlement (cash/prompt-payment) discount is offered for early payment and, unlike a trade discount, is recorded when taken. Modern practice: if the customer is expected to take it, revenue/receivable may be recorded net; when taken, discount allowed is an expense (Dr Discounts Allowed) and discount received is income (Cr Discounts Received), recorded via the cash book/discount columns.
Customer pays early, takes 50 settlement discount:
  Dr Bank 950
  Dr Discounts Allowed 50
      Cr Debtors 1,000
Real-world example A supplier's 2/10 terms lead the buyer to pay early and record discount received when settling within 10 days.

Common follow-ups: When is a settlement discount recorded? | Where are discounts allowed/received posted?

Cash Book & Petty Cash Sales & Purchase Ledgers Books of Prime Entry
All 26 Books of Prime Entry questions