Journal Entry Examples of Discount Allowed

Discount allowed is the loss of business but there is big strategy of long term gain. If any customer will pay us in cash at this time or before the time when he will actually pay for his goods bought goods on credit, then, we will allow discount. With this, we can get our cash from debtors fastly. Secondly, it will help to increase working capital for day to day expenses. So, many organisations have clear policy to allow discount.



Discount allowed  is deduction from purchase price of customer, if he pay within time or before time. In other words, it is encourage to buyer for buying with cash rather than buying on credit. 

Journal Entry Examples  of Discount Allowed 

Discount allowed  must be recorded both vendor and buyer’s journal. In Vendor book, it is treated as discount allowed and this cash discount will become loss of business and in the day book of buyer, it will become discount received account which income account.

1st Example :

Suppose Ram has sold goods to Sham on Credit of Rs. 50000 and it is the term of agreement that if Sham pays within 20 day of this purchase, he can receive 10% discount. If Sham pays within 20 days then Treat cash discount in day book of both parties.

Day book of Seller ( Ram )

Bank Account Dr. 45000
Discount Allowed Account Dr. 5000
Sham Account Cr. 50000

Day book of Buyer ( Sham )

Ram Account Dr. 50000
Bank Account Cr. 45000
Discount Received Account Cr. 5000

2nd Example :

Jan.2  Paid cash to Mohan Rs. 9700

and discount allowed Rs. 400

Jan. 5 Received Cash from Arjun Rs. 5000

and Discount allowed to him Rs. 100

Jan. 11 Goods Sold to Hari  Rs. 31000

Jan. 13 Hari Returned Goods Rs. 1000

Jan. 15 Received cash from Hari Rs. 28000 in full settlement of his account 

Jan. 21 Sold Goods to Ganesh  of List Price of Rs. 70000 at 10% trade discount 

Jan. 24 Purchased goods from Raj of the list price of Rs. 20000 at 20% Trade Discount 

Pass the Journal Entries

Jan 2 

Mohan Account Dr. 10100

Cash Account Cr. 9700

Discount Received Account Cr.400

Jan. 5

Cash account Dr. 5000

Discount Allowed Account Dr. 100

Arjun Account Cr. 5100

Jan. 11

Hari Account Dr. 31000

Sales Account Cr. 31000

Jan. 13

Sales Return Account Dr. 1000

Hari Account Cr. 1000

Jan. 15 

Cash Account Dr. 28000

Discount Allowed account Dr. 2000

Hari Account Cr. 30000

Jan. 21

Ganesh  Account Dr. 63000

Sales Account Cr. 63000

Jan. 24 

Purchase Account Dr. 16000

Raj Account Cr. 16000

Remember : We do not make the trade discount account because we show net amount in purchase or sale account after deducting from trade discount. Only discount allowed account will make.