Discount journal entry

nagamani

guys can you pls tell me the reason why sundry creditor is shown to the debit when we receive discount from him???
eg: abc A/c dr ***
to discount received A/c cr*** ( nominal a/c , income)

CeeJaySix

Initially you buy something at full price, say £10.

Ignoring VAT:
Debit purchases, credit Trade Creditors.

However then we get a 20% discount of £2:
Debit Trade Creditors, Credit Discounts Received.

Therefore you end up with the correct discounted balance of £8 on Trade Creditors.

In the financial statements, discounts received will be netted off purchases under cost of sales, to leave the figure paid for the item of £8.