Journal Entry for Discount Allowed and Received
A discount is a concession in the selling price of a product offered by a seller to its customers. According to nature, there are two types of discount:
A. Discount Allowed
B. Discount Received
A. Discount Allowed: When at the time of sales or receiving cash, any concession is given to the customers, it is called discount allowed.
- Goods sold ₹50,000 for cash, discount allowed @ 10%.
- Cash received from Rishabh worth ₹19,500 and discount allowed to him ₹500.
B. Discount Received: When at the time of purchase or paying cash, any concession is received from the seller, it is called discount received.
- Goods purchased for cash ₹20,000, discount received @ 20%.
- Cash paid to Vishal ₹14,750 and discount received from him ₹250.
According to the business point of view, there are two types of Discount:
A. Trade Discount
B. Cash Discount
A. Trade Discount: The discount provided by the seller to its customers at a fixed percentage on the listed price, mostly on bulk purchases, is called a trade discount. Trade discount is not shown separately in the journal entry.
- Goods purchased from Hardik ₹20,000, at less 10% Trade Discount.
- Goods sold to Abhinav for ₹10,000 and offered him a Trade Discount of @5%.
Example: If goods purchased or sold at a trade discount are returned: (Based on the above example)
- Goods purchased from Hardik worth ₹2,000 were returned.
- Abhinav returned goods worth ₹1,000.
B. Cash Discount: A Cash discount is offered to those types of customers who make quick payments or payment is made by them within a fixed period.
- Goods purchased from Sahil ₹10,000 for cash, at less 10% Trade Discount and 5% cash discount.
- Goods sold to Kashish for ₹20,000 for cash and offered him a Trade Discount @5% and a cash discount @2.5%.
Notes to Accounts:
Working Note 1:
Working Note 2:
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