An allowance given to a customer by a supplier for prompt payment is

An allowance given to a customer by a supplier for prompt payment is a cash discount. This is a discount that is offered to customers who pay their invoices within a specified period of time, typically a few days to a few weeks. For example, a supplier may offer a 2% cash discount to customers who pay their invoices within 10 days. If a customer has an invoice for N10,000 and pays it within 10 days, they would receive a discount of 2% x N10,000 = N200. So they would only have to pay N9,800 instead of the full N10,000. The purpose of a cash discount is to encourage customers to pay their invoices promptly, which helps to improve the supplier's cash flow and reduces the risk of bad debt. It also benefits the customer by reducing the cost of their purchases. It's important to note that a cash discount is different from a trade discount. A trade discount is a reduction in the list price of goods or services, which is often based on the quantity purchased or the type of customer. Trade discounts are not dependent on prompt payment and are not recorded in the accounting records.