(a) Explain the following terms;
i. Trade discount
ii. Cash discount
iii. Bad debts
iv. provision for doubtful debts
v. Bad debts recovered
(b) Mention the errors that do not affect the agreement of the trial balance
Explanation
(a)(i) Trade discount: It is a reduction in the catalogue price of goods in order to encourage buyers to buy in large quantities.
(ii) Cash discount: It is a reduction in the invoice price of goods to encourage prompt payment.
(iii) Bad debts: These are debts which are deemed irrecoverable.
(iv) Provision for doubtful debts: These are estimates of the debts at a point in time which arenot likely to be recovered.
(v) Bad debts recovered: These are debts previously written-off but which have subsequently been retrieved or paid by the debtors.
(b) Errors that do not affect the agreement of the trial balance are:
- Error of omission
- Error of original entry
- Error of commission
- Error of principle
- Complete reversal of entries
- Error of compensation/compensating error
- Error of transposition/transposition error
- Error of duplication