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What is the Journal Entry for Cash Discount?

Journal Entry for Cash Discount

100 keyboards are sold for the invoice price of 300 each with payment terms 1/10, Net 30 days. Journal entry for a cash discount, in this case, will depend on the terms that the buyer will get 1% cash discount from total invoice price if the payment is made within the first 10 days of receipt of the invoice. (Assuming there is no trade discount)

Assuming that the buyer avails cash discount in the above example, we have provided an example of a journal entry for both discounts allowed and discount received.

The discount allowed by the supplier acts as the discount received for the buyer and vice-versa. In the above example, 300 will be the discount allowed by the supplier and the same amount will be the discount received by the buyer.

Example I – Journal entry for cash discount allowed

Cash A/C 29,700 Real A/C – Dr. What comes in
Discount Allowed A/C 300 Nominal A/C – Dr. All expenses and
To Debtor’s A/C 30,000 Personal A/C – Cr. the giver


Example II – Journal entry for cash discount received

Creditor’s A/C 30,000 Personal A/C – Dr. the receiver
To Cash A/C 29,700 Real A/C – Cr. what goes out
To Discount Received A/C 300 Nominal A/C – Cr. all gains


>Read Provision for Discount on Debtors

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