Discount Allowed Discount Received

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi All,

Please can someone point out to me, in lehman's terms, which of the discounts applies to saving the company money - example

Moby Dick Limited settled with their suppliers by sending a cheque for £900, a discount of £100 was given to Moby Dick Limited and the account is now closed.

So, from Moby Dick's point of view, which is the £100 - Discount Allowable or Discount Receivable.

Cheers Chums,
Jamie

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    Discount received i think! never sure myself :lol:

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    Well on an excercise my TB balanced so I got it right, but I just guessed at which side to put it on - for me to fully understand it I need someone to tell me what it should be...
    The words used for this term "Discount allowed and discount received" could be mis-construed as either depending on which angle you look at it.

    Just that little bit of clarification and i'll be sorted.

    Leaving work to go to college now, will check replies on return home so the more responses the merrier!!! Muchi Gracias!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    Discounts allowed are any discounts which the company has given to anybody, say if Moby Dick gave a customer a discount this would be a discount allowed. When it is a discount recieved the discount has been given to the company.
    Also think of it this way a discount received would be money coming into the bank account (Debit the bank account).
    Discount allowed would be money going out (Credit the bank account).
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    To echo RaeRae, the discounts allowed/received are best thought of as from your perspective as the company.

    From Moby Dicks perspective;
    Discounts Allowed are what it gives to its customers.
    Discounts Received are what it gets from its suppliers.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    Discount Received just remeber the received bit ie received being income you the company owe £1000 to trade creditors, you pay them off and receive £100 early payment discount so Dr Trade creditors £1000 Cr Bank £900 Cr Discount Received £100

    Discount allowed you give the discount ie an expense
    You the company are owed £1000 from trade debtors you give them £100 early payment discount so Cr trade Debtors £1000 Dr Bank £900 Dr Discount allowed £100
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    Thank you for that astra - I have an assessment on 6th December on everything I have done so far - only seems like yesterday I started the darn course.

    *EDIT*

    Thanks to GJ and ReaRea too - e-mail link to this post totally cut you 2 out and didn't notice until I read the thread.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    Think in terms of debits and credits and imply on a t account.
    i think of it as is one company getting something or giving something away.



    if someone is getting something(debit) is discount allowed. (on the left cos its got an l in.)

    if its someone giving someone something (credit) then its recieved. (on the right cos its got a r in it)

    hope this helps.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    The seller allows a discount,
    The buyer receives a discount
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    We had this lesson in class on wednesday I and it confused me when the purchaser paid £900 and recieved £100 discount from the supplier so this was a discount allowed?

    Wills :roll:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    discount recieved because he was given a discount.

    just thing giving or recieving

    giving is allowing
    recieving is recieved.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    Hi Chris,

    Just a piece of advice. Don't put your e-mail address on the forums. You should change you user name so that it reads something that you are happy with but does not give out too much personal information about yourself. For example, I have used my first name followed by my surname. Lots of people read these forums and having your e-mail address on display is not a good thing.

    Yours,

    Jayne Hogan
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    My post that follows is primarily a general explanation and not particularly aimed at anyone in this thread. However, the post heading is suitable for anyone struggling with discounts.

    Discounts allowed are an expense you give to the customers. They are a debit on the trial balance like all the other expenses such as rent and rates, heating, fuel, car tax etc (eventually showing in the profit and loss overheads section covered at intermediate)

    Discounts received is "income received" from our suppliers so is a credit on the trial balance (and eventually shown as 'other income' in the profit and loss report)

    The T accounting entries are as follows;

    Discount allowed
    For example, the original sale on credit was £1,000, a debit entry on the subsidiary account. When the customer pays and takes the discount, the postings will be;
    Credit £900 on the subsidiary account ref' bank for the money we actually received
    Credit £100 on the subsidiary account ref' discount allowed account for the discount given
    These £1,000 credits will then tee off against the original £1,000 sale on the debit side. The double entries for these are;
    Debit the bank account for the £900 we received
    Debit the discounts allowed account with the £100 expense.

    Discount received
    For example, the original purchase on credit was £1,000, a credit entry on the subsidiary account. When we pay and take the discount, the postings will be;
    Debit £900 on the subsidiary account ref' bank for the money we actually paid out
    Debit £100 on the subsidiary account ref' discount received account for the discount taken by us
    These £1,000 debits will then tee off against the original £1,000 purchase on the credit side. The double entries for these are;
    Credit our bank account for the actual £900 we paid out
    Credit the discounts allowed account for the £100 "other income".

    Debit expenses (allowed)
    Credit income (received)

    And finally, don't forget to add up all the subsidiaries for the control accounts!

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Discount Allowed Discount Received

    where the bloody hell have you been? back to the darkside to recharge the "Evil" batteries :p

    As always, precise and easy to understand info - cheers Rob

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