Discount

Two Types of discounts

Trade discount Settlement/Cash/Early payment discount

Discount on purchases price Discount on early payment

Reason Reason

To become loyal customer Early payment.

To increase sales
Specific time.
Event
Loyal Customer.

Trade discount is not recorded

The discounted price is treated as if the original price

Discount Received Discount Allowed

Discount Received from supplier Discount allowed to customer
Trade Payable TP = L = Dec= Income Trade Receivables = A= Dec = Expense

Dr Trade payable Dr Discount allowed

Cr Discount Received Cr TR

TP=L=Cr=Dec=Dr DR=I=Cr=Inc=Cr DA= E=Dr=Inc=Dr TR=A=Dr=Dec=Cr

Discounts Page 1
 • ABC company sells goods to XYZ company worth $1000 with 10% discount on credit
• A further 5% discount is offered if the payment is made within 7 days
• XYZ makes payment in 5 days

Required
How will ABC and XYZ record the transactions above

XYZ ABC
Customer Vendor

$1000*10%=$100
$1000-$100=$900 discounted price
Or
$1000*90%=$900

Dr Purchases $900 Dr TR $900

Cr TP $900 Cr Sales $900

$900*5%=$45. discount
$900*95%=$855 payment

Remember cash discount is given on money owed = discounted price

Dr TP $855 Dr Cash $855

Cr Cash $855 Cr TR $855

Dr TP $45 Dr DA $45
Cr DR $45 Cr TR $45

or Dr Cash $855
Dr TP $900 Dr DA $45
Cr Cash $855 Cr TR $900
Cr DR $45

Discounts Page 2
 Dr Cash $45

Dr TR $160 Cr Sales $45

Cr Sales $160
Cash=A=Dr=Inc=Dr Sales=I=Cr=Inc=Cr
Dr TR $80
TR= A=Dr=Incr= Dr Sales=I=Cr=Inc=Cr Cr Sales $80

TR= A=Dr=Inc= Dr Sales=I=Cr=Inc=Cr

Dr Cash $50

Cr Bank $50
Bank = A= Dr=inc=cr Dr Telephone Exp $80
Cash =A=dr =Inc=Dr

Cr Bank $80
$380*85%=$323.00 net price
Or Telephone Bill=E=Dr=Inc=Dr Bank=A=Dr=Dec=Cr
$380*15%=$57 discount
Dr Purchases $400
$380-$57=$323 net price
Cr TP $400

P=E=DR=inc=Dr TP=L=CR=Inc=Cr

Dr Purchases $323 Dr Bank $180

Dr DA $20
Cr TP $323 CR TR $200

P=E=Dr=Inc=Dr TP=L=Cr=Inc=Cr
Bank= A=Dr=Inc= Dr TR=A=Dr=Dec=Cr
DA=E=Dr=Inc=Dr

$120*10%=$12 discount
$120-$12=$108 payment
Dr TR $304
Dr TP $120 Cr sales $304
Cr Bank $108
Cr DR $12
Dr Purchases $135
Cr Bank $135
DR= I=Cr=Inc=Cr
Bank=A=Dr=Dec=Cr Dr Bank $482
TP= L=Cr=Dec=Dr
Cr TR $482

Dr Purchases $100
Cr TP $100

Discounts Page 3
 Double-entry= ledger entry = journal entry

Dr Purchases $450
Cr TP $450

Dr TP $700
Cr purchase returns $700
Or

Dr Purchases $450
(D ) Dr TP $250
Cr Purchase Ret $700

$700-$450=$250 Dr

Dr Cash Dr Cash
Cr TR Cr TR
Cr Sales
(B) Dr Cash or
Cr Sales

Discounts Page 4
 What it simply means how to record credit sales

Studied in control accounts chapter

( D)

Do after bank
reconciliation

Closing 474485

(C)

85000-5000=80000

10000 80000
(C ) ? 79000 9000

( C)

Dr Cash $50 Dr Purchases $100

Dr TR $50 Cr Cash $50
Cr Sales $100 Cr TP $50

Discounts Page 5
 homework

Do this after financial statements

Leave for now

Homework

homework

Discounts Page 6