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The MCQs below are drawn from the Accountancy & Auditing subject category.
Showing 3731–3740
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3731
What is the term for a deduction granted by a vendor on an invoice amount to incentivize early payment?
A cash discount is a reduction in the invoice price offered by a seller to a buyer to encourage the buyer to pay the bill within a specified, shorter timeframe. This helps the seller improve their cash flow and reduces the risk of bad debts.
3732
What is the term for a discount calculated directly on the list price of goods at the time of sale?
A trade discount is a reduction from the list price of goods granted by a seller to a buyer, usually for bulk purchases or trade status. It is deducted before the invoice is prepared and is not recorded in the books of account as a separate expense.
3733
A business offers a 10% trade discount and a 5% cash discount on a $1,800 list price. If the customer settles the invoice to claim the cash discount, what amount is recorded in the cashbook's discount column?
First, the trade discount is deducted from the list price: $1,800 - ($1,800 * 10%) = $1,620. The cash discount is then calculated on this net amount: $1,620 * 5% = $81. Note: The provided answer key is $90, which would be 5% of the original $1,800. This suggests the discount was calculated on the list price instead of the invoice price.
3734
What is the formal accounting term for a discount granted to encourage the prompt settlement of an outstanding debt?
A cash discount, also known as a settlement discount, is a reduction in the amount payable by a debtor if they pay their invoice within a specified, shortened timeframe. This practice is used by businesses to improve cash flow and reduce the risk of bad debts by incentivizing customers to pay their balances earlier than the standard credit terms.
3735
A supplier provides a 12.5% trade discount and a 3% cash discount. Calculate the final payment amount for goods with a $1,600 list price, assuming the cash discount is applied to the net amount.
First, calculate the trade discount: $1,600 * 12.5% = $200. The net price after trade discount is $1,600 - $200 = $1,400. Next, apply the 3% cash discount to the net price: $1,400 * 3% = $42. Subtracting this from the net price gives $1,400 - $42 = $1,358. This represents the final amount paid.
3736
What term describes a concession provided by a supplier to a buyer regarding the sale of goods?
A sales discount refers to a reduction in the amount to be paid by a credit customer for payment within a specified period. While 'Trade discount' is a reduction from the list price, 'Sales discount' specifically refers to the concession granted by the seller to the buyer to encourage prompt payment of invoices.
3737
On 19 October 20x2, goods worth £600 were sold to S Knight with a 2.5% cash discount if paid within 14 days. If payment is made on 25 October, what is the correct double-entry to record the discount?
The discount is calculated as 2.5% of £600, which equals £15. Since the seller is granting a discount to a customer, this is classified as a 'Discount Allowed'. In double-entry bookkeeping, an expense or loss like a discount allowed is debited, and the customer's account (S Knight) is credited to reduce the amount owed.
3738
Discount allowed is typically recorded as a reduction from which of the following?
Discount allowed represents a reduction in the amount a customer is required to pay, usually granted for early settlement of an invoice. Consequently, it directly reduces the balance of the Accounts Receivable, which represents the total amount owed to the business by its customers at a given time.
3739
How is 'discount received' classified in accounting?
Discount received is considered a form of income or revenue for the business. It occurs when a creditor allows a reduction in the amount payable, effectively increasing the net profit of the business. Therefore, it is recorded as a credit item in the profit and loss account.
3740
How is 'discount allowed' classified in accounting terms?
Discount allowed is a reduction in the amount a customer pays, which effectively reduces the total revenue earned by the business. Because it represents a cost incurred to encourage prompt payment or to facilitate sales, it is treated as an operating expense in the profit and loss account.
