Accounting Entries for Cash Discount on Payment

Steps:

• Bank debit of 228 records cash inflow via cheque to Kalou's account.
• Drogba credit of 240 reduces the accounts receivable owed by Drogba to Kalou.
• Discount allowed of 12 records the reduction given to Drogba for early payment.
• Total settlement: 228 (paid) + 12 (discount) = 240 (original amount), confirming receipt with discount.

Why A is correct:

• Discount allowed is debited by the seller (Kalou) when receiving prompt payment from the buyer (Drogba), matching the bank debit for cheque receipt.

Why the others are wrong:

• B: Trade discount is deducted from the invoice price upfront and not recorded separately as "discount allowed" on payment.
• C: Kalou paying Drogba would credit (not debit) the bank account for outflow.
• D: Kalou paying Drogba involves bank credit, and trade discount applies to purchases, not this payment scenario.

Final answer: A