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Discounts Allowed

Discount allowed is the amount of reduction of the sale amount to be paid by your customer. The amount of net sales is arrived at after deduction of sales returns and allowances, and sales discount from sales. The rate of discount is usually expressed as a percentage of the net sale amount, and this reduces the selling price of the sales. The discount does not have any effect on the gross profit but it does affect the net profit. Discount allowed is offered for the following reasons:

  • Discount is allowed to debtors or customers who pay cash for the sales, as opposed to purchase on credit. This discount is deducted from the selling price at the time the sale is made so that the customer pays the net selling price.
  1. Debit the cash account
  2. Credit the debtor's/customer's account (with the net selling price)

Sales Ledger

B Bigtop Account

Date Folio Amount Date Folio Amount
$ $
20XX
Mar 1 Balance b/d 300 Mar 15 Cash CB27 285

To balance off this sale transaction in the account,

  1. Debit the discount allowed account
  2. Credit the debtor's/customer's account (with the allowed discount)

General Ledger

Discounts Allowed Account

Date
Particulars
Folio
Amount

Date
Particulars
Folio
Amount



$




$
20XX








Mar 15
B Bigtop
SL22
15






Sales Ledger

B Bigtop Account

Date

Folio
Amount

Date

Folio
Amount



$




$
20XX








Mar 1
Balance b/d

300

Mar 15
Cash
CB27
285
" Discounts allowed GL14 15
300 300
  • Discount is allowed to debtors or customers who settle their accounts early within the stipulated period, which is usually one month. When a customer goes for an early settlement, the discount allowed account is debited and the customer’s account is credited. The difference between the debit side and the credit side of the customer’s account for this sale transaction is the amount the customer has to pay. The posting to the accounts is the same as above.

Last Updated (Saturday, 11 September 2010 12:58)