Discount allowed is the loss of business but there is big strategy of long term gain. If any customer will pay us in cash at this time or before the time when he will actually pay for his goods bought goods on credit, then, we will allow discount. With this, we can get our cash from debtors fastly. Secondly, it will help to increase working capital for day to day expenses. So, many organisations have clear policy to allow discount.
Discount allowed is deduction from purchase price of customer, if he pay within time or before time. In other words, it is encourage to buyer for buying with cash rather than buying on credit.
Discount allowed must be recorded both vendor and buyer’s journal. In Vendor book, it is treated as discount allowed and this cash discount will become loss of business and in the day book of buyer, it will become discount received account which income account.
1st Example :
Discount allowed is deduction from purchase price of customer, if he pay within time or before time. In other words, it is encourage to buyer for buying with cash rather than buying on credit.
Journal Entry Examples of Discount Allowed
Discount allowed must be recorded both vendor and buyer’s journal. In Vendor book, it is treated as discount allowed and this cash discount will become loss of business and in the day book of buyer, it will become discount received account which income account.
1st Example :
Suppose Ram has sold goods to Sham on Credit of Rs. 50000 and it is the term of agreement that if Sham pays within 20 day of this purchase, he can receive 10% discount. If Sham pays within 20 days then Treat cash discount in day book of both parties.
Day book of Seller ( Ram )
Bank Account Dr. 45000
Discount Allowed Account Dr. 5000
Sham Account Cr. 50000
Day book of Buyer ( Sham )
Ram Account Dr. 50000
Bank Account Cr. 45000
Discount Received Account Cr. 5000
Day book of Seller ( Ram )
Bank Account Dr. 45000
Discount Allowed Account Dr. 5000
Sham Account Cr. 50000
Day book of Buyer ( Sham )
Ram Account Dr. 50000
Bank Account Cr. 45000
Discount Received Account Cr. 5000
2nd Example :
Jan.2 Paid cash to Mohan Rs. 9700
and discount allowed Rs. 400
Jan. 5 Received Cash from Arjun Rs. 5000
and Discount allowed to him Rs. 100
Jan. 11 Goods Sold to Hari Rs. 31000
Jan. 13 Hari Returned Goods Rs. 1000
Jan. 15 Received cash from Hari Rs. 28000 in full settlement of his account
Jan. 21 Sold Goods to Ganesh of List Price of Rs. 70000 at 10% trade discount
Jan. 24 Purchased goods from Raj of the list price of Rs. 20000 at 20% Trade Discount
Pass the Journal Entries
Jan 2
Mohan Account Dr. 10100
Cash Account Cr. 9700
Discount Received Account Cr.400
Jan. 5
Cash account Dr. 5000
Discount Allowed Account Dr. 100
Arjun Account Cr. 5100
Jan. 11
Hari Account Dr. 31000
Sales Account Cr. 31000
Jan. 13
Sales Return Account Dr. 1000
Hari Account Cr. 1000
Jan. 15
Cash Account Dr. 28000
Discount Allowed account Dr. 2000
Hari Account Cr. 30000
Jan. 21
Ganesh Account Dr. 63000
Sales Account Cr. 63000
Jan. 24
Purchase Account Dr. 16000
Raj Account Cr. 16000
Remember : We do not make the trade discount account because we show net amount in purchase or sale account after deducting from trade discount. Only discount allowed account will make.
Categories : Accounting Examples | List of Journal Entries
In 2nd example Mohan a/c ledger is created in which under group in tally?
ReplyDeleteYeah.It's confusing, we treat mohan as a debtor or creditor in tally @Amruta.
DeleteMohan will treat as Creditor .... Because we Are paying the amount to him.
Deletesundry creadtor
DeleteSundry creditor
Delete"10% discount allowed to Mr.anil",voucher entry and voucher names in which these transaction be entered in tally
ReplyDeleteHow to record entry if cash received from debtor on one day but dicount allowed to him on another day
ReplyDeleteIt is really helpful
ReplyDeleteI Don't understand 7th question
ReplyDeletethanks
ReplyDeleteIn every journal entry what should we absorb (before journal entry) some times I am confusing. If discounts allowed then that the loss then why should we take as a dr.
ReplyDeleteDiscount is a nominal a/c
DeleteDr all expenses and losses
Cr all incomes and gains
Discount a/c is a nominal a/c
ReplyDeleteDr all expenses and losses
Cr all incomes and gains