In your company, you are posting an invoice with a cash discount amount using the posting gross method. What is the result of this in the system?

Question

Options

• AThe cash discount amount is posted to a cash discount clearing account, which is cleared at the
• BThe cash discount amount is posted from a cash discount clearing account to the stock account or
• CThe cash discount amount is NOT considered; it is only posted to a cash discount account when
• DThe cash discount amount is credited to the stock or cost account.

• A
  80% (20)
• B
  4% (1)
• C
  12% (3)
• D
  4% (1)

Explanation

When posting an invoice using the gross method, the system records the full invoice amount to the vendor account while simultaneously posting the anticipated cash discount to a cash discount clearing account - this is a temporary holding account that gets cleared (settled) when payment is actually made. Option A is correct because the gross method defers the discount recognition to the payment stage rather than immediately applying it.

Why the distractors are wrong:

• B incorrectly states the clearing amount flows to a stock or cost account - in reality, when the clearing account is settled, it flows to a cash discount revenue/expense account, not inventory or cost.
• C is wrong because the gross method does consider the cash discount at invoice time (it posts it to the clearing account); only the final recognition is deferred.
• D describes the net method behavior, where the discount immediately reduces the stock or cost account at the time of invoice posting - the opposite of what the gross method does.

Memory tip: Think of "gross" as "keep it all gross (full) for now" - the discount sits in a clearing account and only gets recognized when cash actually changes hands at payment.

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