Discount received is the reduction in the price of the goods and services which is received by the buyer from the seller. It is an income for the buyer and is credited to the discount received account and credited to the seller/supplier’s account. Journal entry for discount received as per modern ruRead more
Discount received is the reduction in the price of the goods and services which is received by the buyer from the seller. It is an income for the buyer and is credited to the discount received account and credited to the seller/supplier’s account.
Journal entry for discount received as per modern rules:
Creditor’s A/c | Debit | Decrease in liability |
       To Cash A/c | Credit | Decrease in asset |
       To Discount Received A/c | Credit | Increase in income |
(Being goods purchased and discount received) |
Discount allowed is the reduction in the price of the goods which is granted by the seller to the buyer on prompt payment of their account. It is an expense for the seller and is debited to the discount allowed account and credited to the buyer’s account.
Journal entry for discount allowed as per modern rules:
Cash A/c | Debit | Increase in asset |
Discount Allowed A/c | Debit | Increase in expense |
   To Debtor’s A/c | Credit | Decrease in asset |
(Being goods sold and discount allowed) |
For example, A Ltd. offers a 10% discount to the customers who settle their debts within two weeks. Mr.B a customer purchased goods worth Rs.20,000.
According to modern rules, A Ltd will record this sale as:
Particulars | Amt | Amt |
Cash A/c                                   Dr. | 8,000 | |
Discount Allowed A/c       Dr. | 2,000 | |
           To Mr.B’s A/c | 10,000 |
Mr.B will record this purchase as:
Particulars | Amt | Amt |
A Ltd A/c                                   Dr. | 10,000 | |
  To Cash A/c | 8,000 | |
  To Discount Received A/c | 2,000 |
For a business, the discount received is an income, and the discount allowed is an expense. In the above example, A Ltd has granted a discount and B is the receiver of the discount. Hence, for A Ltd discount allowed is an expense and for B discount received is an income.
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A cash discount is a discount allowed to customers when they make payments for the items they purchased. This type of discount is generally based on time. The early the payment is made by the debtors, the more discount they earn. To be more precise cash discount is given to simulate or encourage earRead more
A cash discount is a discount allowed to customers when they make payments for the items they purchased. This type of discount is generally based on time. The early the payment is made by the debtors, the more discount they earn. To be more precise cash discount is given to simulate or encourage early payment by the debtors.
Trade discount is a discount allowed by traders on the list price of the goods to the customer at specified rate. Unlike cash discount, trade discount is based on number of sale i.e, more the sale more the discount earned. This is mainly given on bulk orders by the customers.
To understand trade discount and cash discount let me give you simple example
Mr. X purchased goods from Mr. Y of list price Rs 10,000. Mr. Y allowed a 10% discount to Mr.X on the list price for purchasing goods in bulk quantity. Further, he was provided with cash discount of Rs 500 for making an immediate payment. Therefore the entry for the above transaction in the books of Mr. X would be