Discounts are very common in today’s business world, they are generally provided in lieu of some consideration which can range from timely payments to trade practices, etc. A discount allowed acts as an expense/loss for the business, whereas when received it acts as an income/gain.
Though trade discount is not to be accounted for in the books of accounts, cash discount and other types of discounts are supposed to be recorded, below are few cases showing the journal entry for discount.
Journal Entry For Discount Allowed
|Cash A/C||Debit||Real A/C||Dr. What Comes in|
|Discount Allowed A/C||Debit||Nominal A/C||Dr. All Expenses & Losses|
|To Debtor’s A/C||Credit||Personal A/C||Cr. The Giver|
Discount used to Settle Accounts
1. Received 5,000 from Unreal Pvt Ltd. in full and final settlement of their account worth 10,000. (Discount Allowed)
|Discount Allowed A/C||5,000|
|To Unreal Pvt Ltd A/C||10,000|