What is the Journal Entry for Cash Discount?

Journal Entry for Cash Discount

Let’s say that 100 keyboards are sold for the invoice price of 300 each and the payment terms are 1/10, Net 30 days. Journal entry for cash discount in this case will depend on the terms that the buyer will get a 1% cash discount from the 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 the cash discount in the above example, we have provided an example of a journal entry for both the discount allowed and the discount received below. The discount allowed by the supplier acts as the discount received by 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 so Dr. What comes in
 Discount Allowed A/C  300  Nominal A/C so Dr. All expenses and
   To Debtor’s A/C  30,0000  Personal A/C so Cr. the giver

 

 

Example II – Journal entry for cash discount received

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