/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q5Q What are the reasons that a comp... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 7: Q5Q (page 362)

What are the reasons that a company gives trade discounts? Why are trade discounts not recorded in the accounts like cash discounts?

Short Answer

Expert verified

Trade discount helps to increase the level of sales for a company, providing the product at a lower price and customer loyalty. A seller does not record the trade discount the same as the cash discount because the price for the product calculated after deducting the trade discount is considered as the accurate, fair market price.

Step by step solution

01

Meaning of Trade Discount

The termtrade discountrefers to the amount of discount offered by the seller to his customer before proceeding to the final billing price, which provides the product at a reduced cost.

A seller offers a trade discount to differentiate the price of a similar product from its competitors.Reducing the billing amount helps the seller to increase the sales levelfor the business, which subsequently helps in higher net income for the business.

02

Reason why trade discounts are not recorded same as cash discounts

The reason why trade discounts are not included in accounts similar to cash discounts is that cash discounts affect the billing amount at which a customer is willing to sell his product to his customer. Therefore, the price calculated for the product is measured as the final selling price after deducting the trade discount.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

(Notes Receivable with Realistic Interest Rate) On October 1, 2017, Arden Farm Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $120,000, 8% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Arden鈥檚 financial statements are prepared on a calendar-year basis.

Instructions

Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for Arden Farm Equipment Company for the entire term of the note.

Under IFRS, receivables are to be reported on the balance sheet at:

(a) amortized cost.

(b) amortized cost adjusted for estimated loss provisions.

(c) historical cost.

(d) replacement cost.

(Bad-Debt Reporting) The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year.

Date

Customer

Amount \(

March 31

E.L Masters Company

\)7,800

June 30

Stephen Crane Associates

6,700

September 30

Amy Lowell鈥檚 Dress Shop

7,000

December 31

R. Frost. Inc

9,830

Dickinson follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts.

All of Dickinson鈥檚 sales are on a 30-day credit basis. Sales for the current year total \(2,200,000. The balance in Accounts Receivable at year-end is \)77,000 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible (assume a zero balance in the allowance).

Instructions

(a) Do you agree or disagree with Dickinson鈥檚 policy concerning recognition of bad debt expense? Why or why not?

(b) By what amount would net income differ if bad debt expense was computed using the percentage-of-receivables approach?

You are evaluating Woodlawn Racetrack for a potential loan. An examination of the notes to the financial statements indicates restricted cash at year-end amounts to $100,000. Explain how you would use this information in evaluating Woodlawn鈥檚 liquidity.

Finman Company designated Jill Holland as petty cash custodian and established a petty cash fund of \(200. The fund is reimbursed when the cash in the fund is at \)15, which it is. Petty cash receipts indicate funds were disbursed for office supplies \(94 and miscellaneous expense \)87. Prepare journal entries for the establishment of the fund and the reimbursement.
See all solutions

Recommended explanations on Business Studies Textbooks

Accounting

Read Explanation

Introduction to Business

Read Explanation

Strategic Direction

Read Explanation

Business Development

Read Explanation

Corporate Finance

Read Explanation

Managers

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.