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Charles entered into the following transactions.
1. He sold goods on credit to cody with a list price of 32000. He allows a 10% trade discount and a further 2 $ discount for payment within seen days. Cody paix within 2 days.
2. He made a credit sale to mary allowing a 5 % trade discount on the list price of 640 $How much discount should be recorded in the discount allowed account as a result of above transactions
Why 2 is not taken in account?Only settlement discounts are recorded in the discount allowed account.
Trade discounts simply reduce the selling price. (So when the sale was made for (2) the entry will have been Dr receivables $608; Cr Sales $608 )
Because you are simply choosing to sell at a lower price (because they are presumably a big customer). So the entry is as I wrote above.
Settlement discounts are not because you are choosing to sell at a lower price – you give them a discount if they pay quickly (and only if they pay quickly) and so the cost of the discount is shown separately – it is more like an interest cost of getting money faster.
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