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Explain the terms: discount allowed and discount received. In accounting, how are they treated in the books of account? |
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Suggested Answer: Discount allowed are given to the CUSTOMERS of a company so as to induce them who are owing money to settle in a time specified by the company. It is treated as an expense on the Profit and Loss Account (Income Statement) Discount received are given by the SUPPLIERS of a company to induce the company to settle in a time specified by the supplier. It is treated as a credit to the Profit and Loss Account(Income Statement) hence increasing the net profit of the business. |