Discount Received Accounting

Discount Received Accounting

In this article we would discuss discount received accounting. Discount received are discount allowed by the creditor on early payment. The discount received is treated as income for the business. Discount is credited being an income and Trade payable is debited as result of reduced liability.

Discount received will reduce the individual creditor (who gave discount) and total creditor/payable liability. It is important to note that discount received shall have no impact /affect on purchases. Some characteristics of discount received are listed below

a)    Discount received is an income.

b)   Discount received will reduce the creditor account.

c)    Discount received have no impact on Purchases.

d)   Discount received will be debited & Debtor account is credited.

Discount Received Accounting Example

Credit Purchases from Ahmed Khan = 200,000

Discount received= 10%

What would be journal entry for discount received?

Solution

In first step , we would record the purchases to creditor by debiting purchases account and crediting creditor account. In second step we would record the discount at the time of payment to creditors.

General Journal

Purchases Entry at time of purchases. In this entry purchases are debited being the increase in expense, while creditor account was credited being increase in liabilities.

Date	Particulars	Dr	Cr
	Purchases A/c	200,000
	Ahmed Khan A/c		200,000

Discount Entry at time of payment.i 

Date	Particulars	Dr	Cr
	Ahmed Khan A/c	40,000
	Discount received A/c		40,000

General Ledger

Now we post the above journal entries in T accounts of ledger. Purchases account will be debited in the light of journal entry, similarly discount received account will be credited. Ahmed account will be first credited for purchases and then debited for discount. This updated status is shown below

                                             Purchases Account

Date	Particulars	Dr.	Date	Particulars	Cr.
	Ahmed a/c	200,000		Balance	200,000
		200,000			200,000

                                        Discount Received Account

Date	Particulars	Dr.	Date	Particulars	Cr.
	Balance	40,000		Ahamed Khan	40,000
		40,000			40,000

                                             Ahmed Khan Account

Date	Particulars	Dr.	Date	Particulars	Cr.
	Discount	40,000		Purchases	200,000
	Balance	160,000
		100,000			100,000

Trial Balance

Now closing balances of T Accounts are transferred to trial balance. In trial balance the discount received appearance on credit side reflects its nature as income.

Account	Dr.	Cr.
Purchases	200,000
Discount Received		40,000
Debtor		160,000
	200,000	200,000