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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/C29,700Real A/C – Dr. What comes in
Discount Allowed A/C300Nominal A/C – Dr. All expenses and
 To Debtor’s A/C30,000Personal A/C – Cr. the giver

 

Example II – Journal entry for cash discount received

Creditor’s A/C30,000Personal A/C – Dr. the receiver
 To Cash A/C29,700Real A/C – Cr. what goes out
 To Discount Received A/C300Nominal A/C – Cr. all gains

 

Short Quiz for Self-Evaluation

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>Read Provision for Discount on Debtors