Settlement discount
A settlement discount, also called a cash or prompt-payment discount, reduces the invoice amount if the customer meets stated payment conditions. It differs from a trade discount deducted from list price. For the seller, expected settlement discounts affect the revenue transaction price under the variable-consideration requirements; they are not automatically a separate operating expense. For the buyer, qualifying discounts reduce the relevant purchase cost. Record the final settlement and adjust estimates where necessary.
Worked example
A $1,000 sale offers 2% off for prompt payment. Assuming the seller expects the customer to qualify and the revenue criteria are met, revenue and the receivable are $980. Receipt of $980 then clears the receivable; sales-tax effects are excluded from this illustration.
Common mistake
Cash discount does not require payment in notes and coins. Keep trade discounts, settlement discounts and sales-tax adjustments distinct.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Cash discount, Prompt payment discount