Of the approaches to record cash discounts related to accounts receivable, which is more theoretically correct?

Question

Quizplus · Accepted Answer

The net approach is more theoretically correct because it records the actual amount receivable and the discount lost. The gross approach records the account receivable at its gross amount, while the allowance approach is used to estimate the amount of discounts that will be taken and records it as a contra-asset account. However, the net approach is the most accurate representation of the transaction.

Of the Approaches to Record Cash Discounts Related to Accounts