When the buyer is preparing his account, he records discounts received as an income in his books. Hence, it is credited. In this case, the seller is offering the customer two types of discounts. Trade discount is not accounted for in the books, and Purchases are recorded as total trade discount received. A cash book is the book for recording detailed information of all money received and paid. Transactions like cash sales, cash purchases, etc are recorded in the cash book.
Credit transactions are not accounted in the cash book. The cash book has two sides i. Cash and bank payments received from customers are recorded on the debit side, while cash and bank payments to suppliers or expenses are recorded on the credit side.
The cash discounts allowed by the seller is recorded on the debit side of the cash book while the discount received by seller from manufacturers are recorded on the credit side of the cash book. Trial Balance shows the credit and debit balances of all the accounts which are extracted from the ledger. In accounting, the debit and credit side of the trial balance must be equal. If they aren't, then there is a mistake somewhere along the line. The rules of trial balance states that all income must be credited while all expenditures must be debited.
See other rules of trial balance. Therefore, for the buyer, discount received is an income. Hence, the total in the discount received account will be recorded on the credit side of the trial balance.
The same goes to discount allowed. It is an expenses for the seller. Hence it is recorded on the debit side of the trial balance. Discount allowed is given to the buyer by the seller while discount received is received from the seller by the buyer. Continuing the example above, the accounting entries to record the purchase of chairs and payment thereof are presented below:.
Journal entry for the purchase of 30 chairs from Roberts Inc. Similar to Roberts Inc. The cash discount received is realized and brought in the books of buyer at the time of making payment to the seller. Johnson would record the payment made to Roberts Inc. The seven key points of difference between discount allowed and discount received have been listed below:.
They both impact cash flow — discount allowed has a negative impact on cash flow of the seller in that it reduces his cash inflow whereas discount received has a positive impact on the cash flow of the buyer as it reduces his cash outflow. Conclusion of sale and purchase transactions have many parameters but one key parameter is the discount negotiated and agreed upon.
Sellers will generally try to offer discounts to attract customers while balancing the same against his profitability. Buyers, on the other hand, will always try to negotiate higher discounts before concluding their purchase transaction. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment.
Discount allowed vs discount received Posted by Terms compared staff Aug 16, Accounting. Definitions and meanings Discount allowed Discount allowed is the reduction in sales price of the goods or services sought to be sold, that is offered by the seller to the buyer. Example Roberts Inc. For example, A Ltd. B a customer purchased goods worth Rs. 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. Sign Up In pursuit to become the world's most used online forum dedicated to Accounting and Finance.
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