Cash Discount Definition:

It is an allowance or deduction allowance by a creditors to a debtor. In other words, cash discount is an allowance made by the supplier or creditor when the purchaser pays his account at once or within the period of credit allowed.

There are generally two methods of recording the cost of purchased materials in the books of the purchaser when cash discounts are allowed by the supplier for prompt payment, these are as follows:

1. Gross price method in which discount earned is treated as other income.

2. Net price method in which value of materials purchased is reduced by the amount of discount available.