Question

1.How does a cash discount differ from a trade discount?

2.why is the adjustment process important in accounting bookkeeping?

Answer 1

Ans:

1. Trade discount is one that is allowed by wholesaler to the retailer, calculated on the list price of the product. It is provided during the sale of product. This discount is shown in the invoice billed by seller to purchaser.

Cash discount is allowed to stimulate instant payment of the goods purchased. It is not shown in invoice.

2. Adjusting entries are made in accounting journals at the end of an accounting period after a trial balance is prepared. The main purpose of adjusting entries is to adjust revenue and expenses to the accounting period in which they occurred. When you record your accounting journal transactions during a month, if you are using an accrual accounting system, that means that the money did not necessarily change hands at that time. The purpose of adjusting entries is to show when the money changed hands and to convert your real time entries that reflect your accrual accounting system.