Cash Discount Definition:
It is an allowance or
deduction allowance by a creditors to a debtor. In other words, cash
discount is an allowance made by the supplier or creditor when the purchaser
pays his account at once or within the period of credit allowed. There are
generally two methods of recording the cost of purchased materials in the
books of the purchaser when cash discounts are allowed by the supplier for
prompt payment, these are as follows: (1)
Gross price method in which discount earned is treated as other income. (2) Net
price method in which value of materials purchased is reduced by the
amount of discount available.
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