Discount received Journal Entry is to record a gain.
It’s a benefit to the business
In Other words, that’s a non-cash inflow.
We’ll understand each of the steps involved in recording it.
Table of contents
Discount Received Journal Entry steps
We need a separate GL account for recording the discount receipt. If there aren’t any, we can create a new Ledger account, “Discount Received.”
Debit the appropriate account with the amount of the discount received.
How about an example here?
Let’s assume a transaction where ABC Supplies Stationery is worth $10,000 to XYZ Entity. ABC Company has a policy of providing 5% discounts to customers who repays the total outstanding amount within five days instead of waiting 30 days.
XYZ paid back the amount within five days and received a cash discount of 5% or $500.
Before understanding the account which will be on the debit side of the entry, we need to drill down here. Let’s know the initial Journal entry to record the Liability and then the payment one.
Recording the Liability
Therefore, The Liability GL account (Accounts Payable) will be on the Journal entry debit side.
Credit Discount Received with the amount of the discount received.
Analyse and review the journal entry for accuracy and completeness. Check if we need to make any changes before finalizing it.
By following these steps, we can accurately record discounts received in your company’s books and ensure that the financials are accurate and up-to-date.
Important Points to Note
- Per GAAP, all losses and expenses will be on debit side, while all Income and gains on credit side of the journal entry.
- Taking advantage of discounts can help reduce costs and increase profits. Still, it is important to ensure correct recording in the books to maintain accurate financial records.
FAQs on Discount Received Journal Entry
Where do you record discount received?
It is an indirect operational Income. So, we will record it on the credit side of the journal entry. Thus, it will be alongside the Incomes section in the Statement of Profit and Loss.
Is discounts received a debit or credit?
Discount received is an indirect income/gain. So, we need to credit it.
How are Discounts Allowed and Received different?
The difference between Discounts Allowed and Received lies in its nature. Discounts allowed is an expenditure, while the discount received will be on the income side.
Discount Received Journal Entry Summary
When making the Journal entries for discounts received, the discount is recorded as an income in the buyer’s books. Per Nominal Accounts Golden accounting rules, we need to debit all losses and expenses and credit all Income and gain. Thus, when recording a Discount Received, the Discount Received Account will be credited with the discount amount received and the corresponding debit to reduce the Liability.