Sales discount

Terms of 2/10, n/30 offer a two-percent reduction for payment within ten days. The unreduced amount must be paid by day thirty. Apply the contract's stated start date and deadline rules. For a $10,000 invoice subject to those terms, payment with the discount is $9,800. The net-settlement formula checks that arithmetic.

Earlier payment lets the seller collect its receivable sooner. A customer compares the saving with borrowing costs, fees, liquidity needs, and other constraints. Access to credit alone does not prove which payment date the customer will choose.

Estimate the price before recording revenue

A settlement discount creates variable consideration: the amount due depends on a later payment outcome. Under ASC 606-10-32-5, the seller estimates the amount it expects to be entitled to for its performance. Use the method that best predicts that amount under 32-8.

The seller must also apply the constraint in 32-11. Include a variable amount only when resolving the uncertainty will probably avoid a significant cumulative-revenue reversal. Payment history is evidence for this judgment, not permission to skip it.

These steps concern the price. An expected failure to collect an established right raises a separate credit-loss question. The examples below exclude credit-loss effects so the discount can be studied on its own. They also assume the revenue-recognition conditions are met.

Record payment or update the estimate

When the customer takes the discount under the supported estimate, collection settles the recorded receivable. It does not create revenue again. See the early-payment example.

When the discount expires, reassess the price using the current facts. At a reporting date, a supported increase allocated to completed performance can increase both revenue and the receivable before collection. Follow 32-14 and 32-43. The expired-discount example shows that timing. A late payer's credit deterioration still requires separate analysis; expiry does not prove that the full amount will be collected.

Distinguish a trade discount

A trade discount reduces a quoted list price in arriving at the agreed selling price. It does not depend on later settlement within an early-payment window. The list price and discount may remain in invoices or sales records, but that does not make the list price the amount of revenue to recognize.

Try the independent measurement practice. State the price estimate, the entry, and what would change if the discount expired before payment.