Home » Accounting terms » C » Cash Discount
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What is Cash Discount?
Definition
It is a rebate or allowance from the amount due granted by the creditor to the debtor at the time when the debtor makes payment before the due date.
Cash discount is offered to encourage the early payment. If payment is due within a specified period of
time after the date of invoice, the number of days should be mentioned e.g. If there are total 10 days to make payment then it can be expressed as n/ 10. It means if payment is made before due date then the discount is allowed to the purchaser.
But in case if the payment is made after the due date then the discount will not be granted. The number of days is preceded by the rate of discount and it is expressed as 5/10. It means if payment is made before due date then 5% discount will be allowed to purchaser.
Example
Let us take some examples of these expressions.
2/10, n/30: It means that there are total 30 days to make payment. If payment is made within 10 days then 2% discount will be given to purchaser.
5/15, n/30: It means that the total number of days available for payment are 30 and a discount of 5% will be given to purchaser if payment is made within 15 days.
