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

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

DISCOUNT ALLOWED ACCOUNT

CREDITOR- Mr E

DISCOUNT RECEIVED ACCOUNT