Accounting Lecture 4

• Settlement method


  • Immediate settlement - cash/bank transfer
  • Later settlement (on credit) - creditor (if company purchases something on credit) or debtor (if customers buy goods on credit)
• Trade discount


  • Discount given by one trader to another
  • Deducted on the invoice indicating the amount that the buyer is charged for the goods
  • Reduces the purchase price (and the amount on which VAT is charged)
  • Purpose - facilitate a bulk sale
  • Invoice - shown as a deduction itself
  • Allowed at the time of purchase
  • Allowed to all customers
  • Not recorded in entry in books
• Cash discount


  • Reduction in the amount that the customer has to pay provided payment is made within a given period
  • Stipulated by the seller at the time of sale e.g. 5% if paid within 30 days
  • Does not reduce the price paid e.g. shown as an expense 'discounts allowed' or as 'discounts received' within other incomes
  • Still reduces amount on which VAT is charged
  • Purpose - facilitate a prompt payment
  • Not shown in invoice
  • Allowed at time of payment - not at point of purchase
  • Not allowed to all customer
  • Recorded in entry in books
• Cash discount - when payment is made

  1. Bank

  2. Discount allowed - expense for the company

  3. Trade receivables
• Revenue expenditure


  • All the expenditures except those to purchase and to improve non-current assets
  • E.g. purchase of goods for resale, heat and lights, rent, rates
  • Revenue expenditure is treated as an expense
• Capital expenditure


  • Purchase of a non-current asset (including the costs of getting it operational at the outset) and the cost of improvements
  • Expenditure on maintaining or restoring a non-current asset (repairs) is treated as revenue expenditure