Discount allowed in accounting, a reduction in accounts receivable due to early payment or meeting specific terms, is calculated to ensure accurate financial reporting. For instance, if a customer purchases $1,000 worth of goods with a 2% discount for payment within 10 days, the discount allowed would be $20.
Proper calculation of discount allowed maintains the accuracy of financial records, allows for timely settlement of accounts, and promotes customer satisfaction. Historically, the concept evolved from traditional business practices of offering discounts for early payments, serving as an incentive for prompt settlement.