Discount received is the reduction in the price of the goods and services which is received by the buyer from the seller. It is an income for the buyer and is credited to the discount received account and credited to the seller/supplier’s account. Journal entry for discount received as per modern ruRead more
Discount received is the reduction in the price of the goods and services which is received by the buyer from the seller. It is an income for the buyer and is credited to the discount received account and credited to the seller/supplier’s account.
Journal entry for discount received as per modern rules:
Creditor’s A/c | Debit | Decrease in liability |
To Cash A/c | Credit | Decrease in asset |
To Discount Received A/c | Credit | Increase in income |
(Being goods purchased and discount received) |
Discount allowed is the reduction in the price of the goods which is granted by the seller to the buyer on prompt payment of their account. It is an expense for the seller and is debited to the discount allowed account and credited to the buyer’s account.
Journal entry for discount allowed as per modern rules:
Cash A/c | Debit | Increase in asset |
Discount Allowed A/c | Debit | Increase in expense |
To Debtor’s A/c | Credit | Decrease in asset |
(Being goods sold and discount allowed) |
For example, A Ltd. offers a 10% discount to the customers who settle their debts within two weeks. Mr.B a customer purchased goods worth Rs.20,000.
According to modern rules, A Ltd will record this sale as:
Particulars | Amt | Amt |
Cash A/c Dr. | 8,000 | |
Discount Allowed A/c Dr. | 2,000 | |
To Mr.B’s A/c | 10,000 |
Mr.B will record this purchase as:
Particulars | Amt | Amt |
A Ltd A/c Dr. | 10,000 | |
To Cash A/c | 8,000 | |
To Discount Received A/c | 2,000 |
For a business, the discount received is an income, and the discount allowed is an expense. In the above example, A Ltd has granted a discount and B is the receiver of the discount. Hence, for A Ltd discount allowed is an expense and for B discount received is an income.
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Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement. It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by theRead more
Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement.
It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by the customer or any other manufacturing default.
Sales allowances arise when any customer accepts the product at a lower price than the original price or, in other words, a reduction in the price charged by a seller, due to any problem related to the sold product like a quality issue, an incorrect price charged or shipment issue.
Sales allowances are created before the final billing is paid by the buyer.
Journal entry for sales return and allowances: