Question

we have to prepare both discount allowed and discount received accounts in ledger
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Answer 1

Explanation:

Discount allowed is a reduction in price of goods or services allowed by a seller to a buyer and is an expense for the seller. However, Discount received is the concession in price received by the buyer of the goods and services from the seller and is an income for the buyer.

Journal Entries

There are two types of discounts allowed by the seller. First is a Trade discount and another is Cash discount.

Trade discount

is not recorded in the books of accounts. It is generally given at the time of sales, like on bulk purchase. Hence, the Sales amount is shown net of trade discount in the books.

A cash discount

is given as an incentive for early payment. It is shown as an expense in the Profit and loss account. Initially, the sales are shown as full amount. Then, the receivables are reduced with the amount of discount allowed.

#1 – Discount Allowed

Discount allowed is accounted as an expense of the seller. Hence, it is debited while making accounting entries

in the books.