Forest Accounting

FOR 426
K M Nazmul Islam
Assistant Professor
IFESCU
www.ifescu.ac.bd
Journal entries for discount
received and allowed
Discounts may be offered by suppliers on sales of
goods to attract buyers. Discounts may be classified
into two types:
• Trade Discounts: offered at the time of purchase
for example when goods are purchased in bulk or
to retain loyal customers.
• Cash Discount: offered to customers as an
incentive for timely payment of their liabilities in
respect of credit purchases.
Trade Discount
• Trade discounts are generally ignored for accounting
purposes in that they are omitted from accounting
records.
• Therefore, purchases, along with any payables in the
case of a credit purchase, are recorded net of any trade
discounts offered.
Example
• BMX LTD as part of its purchases promotion campaign
has offered to sell their bikes at a 10% discount on their
listed price of $100.
• Purchases and payables in respect of BMX LTD will be
recorded net of trade discount, i.e. $90 per bike.
• Cash Discount
Cash discounts result in the reduction of purchase costs
during the period and the amount payable in respect of
those purchases.
• Example
BMX LTD as part of its purchases promotion campaign
has offered to sell their bikes at a 10% discount on their
listed price of $100. If customers pay within 10 days from
the date of purchase, they get a further $5 cash discount.
Bike LTD purchases a bike from BMX LTD and pays within
10 days of the date of purchase.
Purchases Dr. 90
Accounts Payable Cr. 90

Accounts Payable Dr. 5

Discount Received Cr. 5
• Example
• Bike LTD as part of its sales promotion campaign
has offered to sell their bikes at a 10% discount on
their listed price of $100. If customers pay within
10 days from the date of purchase, they get a
further $5 cash discount. Bike LTD sells a bike to
XYZ who pays within 10 days.
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