Double Entry Rule or System to account for Discount Allowed and Discount Received

January 23rd, 2011 Comments off
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Earlier article on discount allowed and discount  received refers.

Accounting Double Entry for

Discount Allowed:

Debit : Discount Allowed Account

Credit: Debtor’s Account

Subsequently, discount allowed will be credited and charged to the Profit & Loss Account/Income statement.

Discount Received:

Debit: Creditor’s Account

Credit: Discount Received Account

Subsequently, discount received will be debited and the Profit & loss account/Income statement is credited.

Illustration:

ABC’s books show the following transactions relating to discounts:

Jan 1 Received from Mr. D $20,000 discount allowed by ABC $200

Jan 5 Paid Mr E $30,000, discount received from Mr E $300

ABC closed its book on a monthly basis.

Ledgers as follow:

DEBTOR- Mr D

Dr($) Cr($)
Jan 1 Cash 19,800
Jan 1 Discount Allowed 200

DISCOUNT ALLOWED ACCOUNT

Dr($) Cr($)
Jan1 Debtor-Mr.D 200 Jan31 Profit & loss 200

CREDITOR- Mr E

Dr($) Cr($)
Jan5 Cash 29,700
Discount Received a/c

300

DISCOUNT RECEIVED ACCOUNT

Dr($) Cr($)
Jan 31 Profit & loss 300 Jan 5 Creditor-Mr. E 300

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Financial Accounting

 
 

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