Adjustment of Provision for Discount on Creditors in Final Accounts (Financial Statements)

Provision for Discount on Creditors is created on the basis of the assumption of the amount of discount the business will get from its creditors at the time of payment in the future.

Adjustment:

A. If Provision for Discount on Creditors is given outside the trial balance: 

In such case, wo effects will take place:

• In the Cr. side of the Profit & Loss A/c.
• Amount of Provision for Discount on Creditors is deducted from the Creditors A/c in the Liabilities side of the Balance Sheet.

B. If Provision for Discount on Creditors is given inside the trial balance

If Provision for Discount on Creditors is given in the trial balance, it will be recorded only once on the Credit side of the Profit and Loss A/c.

Illustration:

Following are some of the balances that appear in the books of Mr Haider.

The following adjustments have to be made:

1. Further bad debts amount to ₹2,500, Provision for Bad debts to be made at 5%, Provision for Discount to debtors @2%.

2. Goods are given away as charity amounting to ₹10,000.

3. Goods drawn for personal use ₹5,000.

4. Goods amounting to ₹15,000 were destroyed by fire and the insurance company admitted the claim for only ₹10,000.

5. Closing Stock amounts to ₹10,000

Solution: