5.

4 Discount Revenue
To make sure customers pay either early or on time can be a disputed problem. A common
option is to offer a settlement discount which rewards customer who pay early

Settlement discount:
A reduction in the amount paid by a credit customer in return for early repayment

Discount revenue:
Revenue in the form of a decrease in liabilities (Accounts Payable) and an increase in
owner’s equity, earned when Accounts

Calculating the discount:

 5% discount within 7 days

 Net amount (n) within 30 days

Effect on the Accounting equation:

Benefits and costs:
Benefits:
 Less cash is paid to Accounts Payable, meaning some cash is retained to make other
payments
 Net profit is increased as the discount earned is revenue

Costs:
 Cash is paid to Accounts Payable faster, meaning there may be less time generate
cash from sales
 Cash is unavailable to make other payments,